Veolia Environnement Annual Report 2002

VE registered office:36-38 avenue KléberF-75116 ParisTel: +33 1 71 75 00 00

www.veoliaenvironnement.com

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2002 Annual Report

The company’s values

A message from the Chairman of the Management Board

2002 key figures

Profile

Historical overview: 150 years of serving the environment

The company’s new name

Corporate governance

Stock market and shareholders

An international company

Customers:

OUR BUSINESSES

Waste management

Energy services

Transportation

FCC

SUSTAINABLE DEVELOPMENT

Principles and actions

Value creation

Research and innovation

Environmental responsibility

Social responsibility

Risk management

CONTENTS

2

4

8

10

11

15

16

20

24

30

Municipal customers30

Industrial and tertiary customers34

42

48

52

56

60

62

62

65

38

66

68

74

82

Key words86

For further information This document is printed on Belair Mat Satin ecological paper.

In addition to this Annual Report, VE has published the following documents for its shareholders:

- a document de référence approved by the COB- a 20 F registered with the SEC- a sustainable development report.

These documents can be sent on request or accessed on the following Web sites:- Corporate Web site: www.veoliaenvironnement.com- Shareholders’Web site: www.veoliaenvironnement-finance.com- Financial Web site: www.actionnaires.veoliaenvironnement.com- The VE sustainable development Web site: www.d.durable.veoliaenvironnement.com

This document is not the document de référence approved by the COB (the French securities and exchange commission).

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FINANCIAL RESULTS AND MANAGEMENT REPORT SUMMARY76

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Environmental services42 >

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EA Water44 >

VE - 2002 Annual Report

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becomes

Vivendi Environnement

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2002 Annual Report - VE2

CUSTOMER FOCUSWe focus on our customers at all times, demonstrating thediscipline and professionalism to anticipate and adapt to theirneeds and building a solid and lasting relationship with them.

RESPONSIBILITY

INNOVATION

We show financial discipline at every level and concentrate oncreating value for the company and its shareholders with a view tosustaining our action and ensuring long-term growth.

COHESIONThe interests of individuals within the company are subordinatedto the common interest. Experiences are shared and every successis a collective victory.

THE COMPANY’S VALUES

PERFORMANCE

We realize that our everyday actions have impacts on the improvementof people’s living conditions.We never forget the effects of our businesson our employees and on society as a whole, and operate with thecommon good in mind.We allow our managers to assume fullresponsibility for the decisions they are called upon to make in carryingout their duties and expect them to fulfill that responsibility.

We create the environmental services of the future. Through boldand imaginative research and innovative technologies, wecontinuously improve quality of service and value added forcustomers and users alike.

VE - 2002 Annual Report 3

VEOLIA ENVIRONMENT:A COMMITTED COMPANY

VE is committed to protecting the environmentwherever the company operates.In particular by:

• Strictly complying with international and local environmental regulations

• Involving its teams in improving the quality of people’s daily life• Operating its business to the highest environmental standards.

VE is committed to anticipating the environmental needs and expectations of its municipal, business and residentialcustomers.In particular by:

• Paying attention to its customers’ needs and learning abouttheir businesses

• Taking into account new challenges such as health and hygiene safetyin its innovative research

• Employing skilled and professional teams that are committed to implementing the company’s environmental policy with disciplineand innovation.

These commitments are described in detail in a 10-point Charter on Sustainable Development,which appears in the Sustainable Development Report published along with this AnnualReport. It is available on request and is posted on our Web site.

They are also expressed in the Code of Ethics adopted by VE on March 3, 2003, which all of itsemployees worldwide are expected to adhere to.

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In its long history, our company has seen

many eventful years, but 2002 was

certainly one of the most remarkable.

In the economic sphere, the company was

able to achieve real growth while meeting

strict financial criteria. Excluding foreign

exchange fluctuations, revenue increased

5.9%, with a 7.2% rise in core business activi-

ties alone. Cash flow from operations

climbed 13% in 2002 on the heels of a 26%

increase in 2001. Recurring net income

amounted to €429 million, compared with

€420 million in 2001 and justifying continu-

ation of a dividend of €0.55 per share. Over

and above these results,which were attained

despite the stock market crisis and slow-

down in the economy, our company’s main

achievement in 2002 was to put in place the

conditions for a new beginning characterized

by coherence and responsibility.

That new beginning is symbolized by the

new name, Veolia Environnement, which

will be submitted for approval at our

Shareholders Meeting.We felt that a name

change was in order because of the

sentiments we perceived on the part of our

employees, customers and shareholders. It

is a fitting expression of our shared feeling

of a new start combined with respect for

our roots. We will have the opportunity to

demonstrate this during the year, since

2003 marks the 150th anniversary of our

company’s founding.

This new start is reflected even more

concretely in the radical change in our

ownership structure. In 2002, Vivendi

Universal’s holding in our company was

reduced from 63% to 20.4%. This enabled a

group of investors, made up mainly of

major financial institutions, to acquire an

interest in our company and be involved in

our long-term growth.

In 2002, the company also moved to its

new head office on Avenue Kléber in Paris.

For the first time in our history, all of the

corporate functions and the senior

management of each of the divisions are

now housed under the same roof.


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A MESSAGE FROM THE CHAIRMAN

HENRI PROGLIO, CHAIRMAN OF THE MANAGEMENT BOARD


The company’s overhaul was accompanied

by a reorganization of senior management

that took place in February, and a proposal

to the Shareholders Meeting that the

company be managed by a Board of

Directors, which would be more suitable

for representing a diversified ownership

structure.

Veolia Environnement, first, reflects a

coherent future because of its stable strategy.

Our company has only one core business,

and that is environmental services. It carries

out that business in four complementary

sectors: Water, Waste Management, Energy

Services and Transportation.

This complementary relationship of our

businesses corresponds to a strong com-

mercial reality. In an increasingly urbanized

world, our four activities meet the main

concerns of municipalities, their elected

representatives and their inhabitants. Our

expertise in this range of services also

allows us to propose integrated offerings to

industrial customers, an area that is meet-

ing with increasing success.

But beyond their commercial interest, our

divisions’ synergies are being tapped

every day: in research, where more and

more of our studies involve several of

our activities; in shared know-how, for

example in the transposition of methods

for managing transportation networks to

the rationalization of household waste

collection; and in the convergence of the

businesses, an excellent example of which

is energy recovery from waste.

Veolia Environnement also reflects this

coherence through its total expertise in a

demanding business where success has

been built on three foundations: first, the

rigorous management experience we have

acquired over the decades everywhere in

the world; next, our considerable capacity

in research and innovation, which is totally

focused on improving the financial and

environmental performance of our techno-

logies; last, but far from least, the quality of

our human resources, which has been

maintained throughout our growth by an

explicit policy on training and career

advancement.

This high degree of expertise serving a

coherent, strict and ambitious conception of

its business makes Veolia Environnement

unique on the international stage in many

respects.

It explains the company’s success despite

the sluggish market conditions in 2002:

Shanghai, Indianapolis, Poznan, London,

Atlanta, Singapore, Rabat, Jerusalem, Prague

and The Hague are some outstanding

examples of cities that awarded us

contracts, generally for between 20 and 50

years.We also won new industrial contracts,

often involving several of our divisions, and

saw an exceptionally high rate of renewal of

our expiring contracts.

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Our divisions’ synergies are

being tapped every day:

in research, in shared know-how

and the convergence of

the businesses

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Our new start is also one of responsibility.

As I see it, our professionalism, the successes

we have achieved and our company’s

uniqueness require that responsibility of us.

We are responsible first of all to our

shareholders, without whom we would not

be able to achieve anything. Whether in

terms of the strong growth in our cash flow

from operations, the reduction of our debt or

the disposal of non-core businesses, in 2002

our company exceeded –and at times by far–

the targets it had set itself, confirming the

validity of its management decisions. But in

these difficult times, there is no room for

complacency.

Thus, I have made it a point to remind our

managers, and especially those on whom

our growth depends, of the need to

continuously strive to improve our return

on investment.

Fundamentally, we are service providers.

The quality of the services we provide and

our capacity to generate savings for our

public and private-sector customers form

the basis of our commercial approach. The

infrastructure financing that is sometimes

part of our assignments must be carefully

weighed from the perspective of its

necessity, size and cost-effectiveness. This

reasoning is illustrated by the agreement

we signed in 2000 with EDF. Our strategic

partnership with the world’s biggest

producer of electricity means that we do

not have to invest in primary energy

production and allows us to concentrate on

developing value added energy services.

This is the logic I want to see reinforced in

our growth; we must take advantage of

developments in the sector that enhance

our competitive edge.

In the first months of 2003, several major

contracts were signed that required no

significant investments on our part: two

examples are a transportation contract in

Boston and a waste management contract

in Puxi-Shanghai. This is the direction we

must take, since it will allow us to strike the

right balance between profitability and the

pursuit of growth that creates value for our

shareholders.

We are also responsible on a more global

level as a company wishing to be a player in

sustainable development and in building a

world in which economic progress and

better living conditions go hand in hand.

Sustainable development is not a passing

fad. The rational and informed use of

scarce resources and control over the

impact of human activities will be among

the century’s priorities.

Problems of sustainable development are

often considered third-world problems, but

they also concern developed countries. One

striking example comes from North

America, where as much as 50% of the

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In 2002, our company exceeded

–and at times by far–

the targets it had set itself,

confirming the validity of

its management decisions.

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water in municipal networks can be lost

because of leaks. That is five times the rate

we obtain in operating certain European

networks!

We contribute significantly to sustainable

development by fighting wastage and

improving the quality of water; by destroy-

ing waste cleanly, converting it to energy or

recycling it; by promoting ways of saving

energy; and by improving transportation

systems.

These actions are an intrinsic part of our

business. By being scrupulous, rigorous and

imaginative in our work, we are helping to

build a form of progress that preserves life.

This is the message our company brought

to the Earth Summit in Johannesburg and

a few weeks ago to the Third World Water

Forum in Kyoto.

The concept of “public-private partner-

ships” is emerging in international circles as

one of the best ways of meeting the

challenges of sustainable development.

We are pleased to see this because the

concept is basically very similar to the

French mechanism of public-service

outsourcing, the very foundation of our

company’s business model.

Since July 2000,when Veolia Environnement

carried out its IPO, the financial markets

have been in turmoil. These have been

difficult times for our shareholders, but

they have remained loyal to us and

enthusiastic in their support for our

growth when we increased our capital

stock in the summer of 2002. They are

also frustrating times for our employees

because the markets have not yet

acknowledged their efforts at improving

growth and efficiency.

I am convinced that the upheavals, which

obviously are affecting us, are transitory.

They will eventually fade away, leaving a

more accurate assessment of reality. As for

Veolia Environnement, the reality is that

we have met and surpassed our targets;

our business model has proven valid; stable

and solvent new markets are opening up

for us; our exposure to international risk is

very limited; we have exceptional visibility,

with signed contracts representing more

than 10 years of revenue; and we are not

only the world leader in our business

but perhaps the only pure player in

environmental services.

Those are the reasons for my confidence

in the future of Veolia Environnement.

I sincerely hope that you share it.

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By being scrupulous,

rigorous and imaginative

in our work, we are helping

to build a form of progress

that preserves life.

“

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KEY FIGURES


2000 2001 2002

Change in consolidated revenue(in billions of euros)

Revenue

30.0829.1326.26

Consolidated revenue was up 3.3% on the 2001 figure. Excluding non-core businesses sold during the year or in the process of being sold, the increase amounted to 5.9% (or 7.2% at constant exchange rates).

Breakdown of 2002 revenue by division

Water

Waste management

Energy services

Transportation

FCC*

44.2%

20.4%

15.2%

11.4%

8.8%

The Water Division’s contribution to consolidated revenue decreased from 46.8% in 2001 to 44.2% in 2002. This was attributable mainly to the divestment of non-core businesses completed during the year.

* VE share: 49%

Breakdown of 2002 revenue by geographical area

France

Rest of Europe

Americas

Rest of the world

43.2%

32.6%

18.3%

5.9%

In 2002, revenue increased everywhere except the Americas, where divestments and change in the dollar exchange rate had an adverse effect. The positive trend in other geographical areas reflects the consolidation of acquisitions made in 2001 and the start-up of contracts won in 2000 and 2001.

Cash flow from operations(in millions of euros)

2000 2001 2002

2,7802,4551,953

Following a 26% increase in 2001, cash flow from operations rose again in 2002 (13%). After maintenance capital expenditures, which remained virtually flat at €1.3 billion, free cash flow from operations before growth investments increased 36% to €1,457 million. In addition, asset disposals completed in 2002 generated a further €1.8 billion in cash and cash equivalents.

Capital expenditure and investments(in millions of euros)*

2000 2001 2002

3,7384,0523,539

2,208

1,331

2,670

1,382

2,415

1,323

Growth investments

Maintenance capital expenditures

VE continued to expand in 2002, investing selectively in new projects.

* including 49% for FCC

Net debt(in millions of euros)

While maintaining a significant level of investment in 2002, VE strengthened its financial structure and reduced its net debt through the disposal of non-core assets and a capital increase in August.

13,188

13,06614,283

20012000 2002

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* Total workforce managed at December 31, 2002, including 100% of FCC’s employees** Includes 100% of earnings from the Water and Waste Management businesses of Proactiva,a joint-venture company owned by FCC and VE*** Excludes production, trading and sale of electricity

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VE is the only company in the world that focuses entirely on environmental services, covering thewhole range in each of its four components: Water (water cycle management), Waste Management(collection, management, treatment and recycling of waste), Energy Services and Transportation.Through its core business, VE addresses the planet’s major challenges in sustainable development.

The fit between its four divisions, combined with its international presence, enables the company todevelop integrated service packages that offer a comprehensive, tailored response to the environ-mental problems faced by customers in both the public and private sectors around the world.

• Consolidated revenue of €30 billion in 2002• Recurring net income of €429 million• 302,000 employees managed*

World leader in environmental services

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• Operations in nearly 100 countries around the globe• 57% of consolidated revenue generated outside France• Over 95% of revenue generated in industrialized countries

with stable political and monetary systems

One core business: serving the environment

A worldwide network

No. 1 worldwide in the water industry2002 revenue: €13.3 billion**110 million people around the world provided with water and wastewater services

No. 2 worldwide and one of the world’s leaders in hazardous industrial waste2002 revenue: €6.1 billion**54 million metric tons of waste treated by Onyx around the world in 2002

No. 1 in Europe for energy services***2002 revenue: €4.6 billion70,000 facilities managed

Waste management

Energy services

TransportationNo. 1 private operator of surface passenger transportation in Europe2002 revenue: €3.4 billionOver 4,000 municipal customers

Four divisions

Water


Earnings

20022000 2001

Change in consolidated EBIT(in millions of euros)

1,9712,0131,650

The 2.1% decline in EBIT in 2002 is attributable to the sale of non-core businesses and the fall in the dollar. Excluding non-core divestments, all of the divisions contributed to 1.9% growth in EBIT, or 3.2% at constant exchange rates.

Breakdown of 2002 EBIT by division

Water

Waste management

Energy services

Transportation

FCC*

52.0%

19.5 %

12.4%

5.9 %

12.7 %

In 2002, the Water Division’s contribution to EBIT, calculated solely on the basis of core businesses (i.e., excluding businesses sold or in the process of being sold), amounted to 48.7%.

* VE share (49%)

Breakdown of 2002 EBIT by geographical area

France

Rest of Europe

Americas

Rest of the world

30 %

38 %

25 %

7 %

The breakdown by geographical area shows the decline in the contribution from the Americas and France in favor of other areas. This change was due principally to the disposal of US Filter’s non-core businesses, the market for equipment in the United States and the ramping up of contracts won between 2000 and 2002 in Central Europe and Asia.

Change in recurring net income(in millions of dollars)

2001 2002

Workforce at December 31

2000

302,000295,000269,000

The weighted average consolidated workforce was 257,000 in 2002, compared with 239,000 in 2001 and 215,000 in 2000.

(100% of all subsidiaries, including FCC)

The growth in recurring net income in 2002 reflects solid earnings from each business despite difficult economic conditions, together with the successful strengthening of the company’s financial structure during the year.

342.0

429.0420.0

20012000 2002

Change in consolidated net income(in millions of euros)

614.8

339.2(2,251.2)

20012000 2002

Taking into account an exceptional goodwill write-down and restructuring costs, consolidated net income amounted to €339.2 million in 2002.

>VE - 2002 Annual Report20

STOCK MARKET AND SHAREHOLDERS

VEOLIA ENVIRONNEMENTAND THE STOCK MARKET

SHARE PRICE PERFORMANCE

180

160

140

120

100 100

80

60

40

20

0

Performance of VE shares on the Paris Stock ExchangeComparison with the CAC 40 and DJ Stoxx Utilities indexes (base of 100 on July 20, 2000, the date of the IPO)

VE

VE

CAC 40

CAC 40

DJ STOXX UTILITIES

DJ STOXX UTILITIES

2001 20022000J A S O N D J F M A M J J A S O N D J J J A S O N D J F MF M MA

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VE shares were

selected in

November 2002 by

Éthibel, an independent Belgian

rating agency specializing in

sustainable development.

By awarding VE its label, Éthibel

recognizes that the company

has high ethical, social

and environmental standards

satisfying the strictest

sustainable development

criteria.

The concept of a social rating

by specialized agencies is a new

idea, which requires further

refinement. But ethical and

socially responsible investment

indices are finding growing favor,

especially among US and UK

investors.

Investment funds specializing in

these values are currently

experiencing an impressive rate

of growth in the United States,

as well as in Europe. By securing

this first ethical label of quality,

VE has positioned itself as a

company meeting the

sustainable development criteria

of leading investors.

First “socially responsible” rating

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Éthibel

This capital increase will have a positive

structural impact by helping to streng-

then the company’s finances. The arrival

of major new institutional shareholders

illustrated the confidence and trust that

the company commands.

Since the beginning of 2003, the stock mar-

kets, including the Paris stock exchange,

have continued to head sharply lower, and

VE shares have not escaped unscathed.

In France as in the United States, 2002

was a very difficult year on the stock mar-

ket for all leading companies. Two addi-

tional factors were a drag on the per-

formance of VE shares:

- the withdrawal of majority shareholder

Vivendi Universal during the year;

- the dilutive impact of the €1.5 billion

capital increase carried out in August

2002 (issuance of new shares accounting

for 17% of the capital stock).

> HISTORICAL OVERVIEW

Creation ofCompagnie Généraledes Eaux (CGE) on December 14, 1853by Imperial decree. Itsfounders have twogoals: to irrigate thecountryside and tosupply water to townsand cities. The compa-ny wins its first publicservice concession tosupply water in Lyons.Seven years later, theParis municipalitysigns a contract forwater distribution for 50 years.

François Grandjouanwins a contract withthe Nantes municipal-ity to “clear the streetsof mud and waste,and convert it intomanure.”At about the sametime (1870), FrèresSoulier is created inRouen and Chauny tobuy, sell and collectrags and old paper.The two companiesjoin CGE in 1980 and1990 respectively.

Creation ofCompagnie GénéraleFrançaise deTramways (CGFT).The city conceptinitiated by BaronHaussmann revolu-tionized urban transportation andtriggered a boom in a new form of locomotion, thehorse-drawn tram,in response to theinadequacy of theomnibus. CGFT oper-ates the first tramservices in Le Havre,Nancy and Marseilles.The company joinsCGE in 1980.

Venice, Italy: the firstsuccess outside France.A treaty grants CGEthe rights to waterproduction and distribution in Venice.It is followed byConstantinople in 1992and Porto in 1883.In 1884, CGE extendsits business for the first time towastewater treatmentin Rheims.

1853 1867 1875 1880

Creation of Fomentode Obras yConstrucciones (FOC),a Spanish companyspecializing in civilengineering andmunicipal services,wastewater treatment, wastecollection and transportation. FOC,which later becomesFCC, has been VE’sstrategic partner inSpain since 1998.

Ozone, a major techno-logical discovery.A process using ozoneto filter and sterilizewater is developed tocomplement or replacechlorine.Implementation startsfour years later.The investment inresearch and development increasesthroughout the century, culminating inthe creation of AnjouRecherche, CREED andEurolum, VE’s threeresearch entities.

1900 1905

Charles Blum createsCompagnie Générale d’Entreprises Automobiles (CGEA),with the aim of buying, selling,maintaining and operating a fleet ofindustrial vehiclesequipped with theautomobile front-wheel drive inventedby Georges Latil.In 1919, CGEA launchesinto the householdwaste collection market in Paris.The company joinsCGE in 1980.

1912

Léon Dewailly foundsChauffage Service, acompany specializingin the operation of heating and air conditioning systems. In 1960,Chauffage Servicemerges withCompagnie Généralede Chauffe (CGC),created in 1944,which joins CGE in 1967.

1935

Compagnie Généraledes Eaux celebratesits 100th anniversary:drinking water is nowsupplied to 8 millionpeople over 10,000 kilometers of supplynetwork in France.The company extendsits business to newservices such as household waste collection.

1953

Virtually all the contracts for mainte-nance of America’sNATO bases in Franceare awarded to CGC.In addition to maintaining heatingfacilities, the companyundertakes a widerange of maintenanceactivities.The experience is theprecursor of facilitiesmanagement, nowoffered by Dalkia.

1967The group operates its first waste incineration plants.

1958

150 YEARS OF SERVING THE ENVIRONMENT

From Compagnie Générale des Eaux…VE - 2002 Annual Report11

CORPORATE GOVERNANCE


VE’s corporate structure with a Manage-

ment and Supervisory Board was originally

introduced by its former core shareholder,

Vivendi Universal, and has served its pur-

pose. Since Vivendi Universal held just

20.4% of VE’s capital at December 31, 2002,

it was time to overhaul the corporate struc-

ture. Consequently, VE proposed adapting

its corporate decision-making bodies to

reflect its newly gained independence and

improve its efficiency.

A resolution was proposed at the Annual

Shareholders Meeting of April 30, 2003 to

give the company a Board of Directors with

even tighter corporate governance rules. In

particular, an emphasis will be placed on

the appointment of more independent

directors.

ADOPTION OF A CHARTER OF BUSINESS ETHICSOn February 5, 2003, a business ethics

charter called “Ethics, conviction and

responsibility” laying down a code of con-

duct for the company’s dealings with all its

employees and partners was adopted. This

charter illustrates VE’s resolve to adopt the

best corporate governance practices. Under

the charter, an ethics committee will be set

up during 2003, which will be chaired by

Henri Proglio. It will be responsible for

examining, coordinating and settling any

issues relating to compliance with the fun-

damental corporate values, difficulties

encountered and desired improvements.

A NEW CORPORATE STRUCTURE:SWITCH TO A BOARD OF DIRECTORS

>

Disclosure of the remuneration paid to senior executives during 2002

Total gross remuneration, including benefits in kind, paid to senior executives during 2002 was as follows:

Remuneration paid to members of the Management Board > Total gross remuneration paid to all members of the Management Board

Stock option plans granted to the Management Board > Share subscription or purchase options granted in 2002 to all members of the Management Board with an exercise price of €37.53 and expiring on January 29, 2010

Attendance fees paid to members of the Supervisory Board

(1) includes the remuneration paid by VE and controlled companies(2) out of a total budget of €400,000.

For more detailed information about executive directors, please consult the document de reference, which is available upon request and may be downloaded from the company’s Web site.

i

€4,357,691 (1)

465,000 options,

€398,125 (2)

and the amount and allocation of atten-

dance fees, as well as reviewing stock

option plans for senior executives. In addi-

tion, the committee oversees the selection

and proposes the appointment of new

executive directors. It has three members,

namely Serge Michel (Chairman), Paul-Louis

Girardot and Louis Schweitzer.

The current plan is to leave in place the

two new committees set up by the

Supervisory Board during March 2003 and

to adapt them to the needs of the Board

of Directors, when it is introduced.

Following the Supervisory Board’s lead,

each of the new committees was given a

code of conduct.

HISTORICAL OVERVIEW >

The first oil crisis triggers research fornew technologies tosave energy. CGCresponds with solutions such as geothermal energyand recovery of lostenergy.

In 1975, CGE createSARP Industries forrecycling hazardouswaste. The new company rapidlybecomes Europe’s No. 1center for treatingtoxic liquid waste.1980

1973

The business consolidates:CGE groups together allits subsidiaries specializing in thedesign, engineeringand construction of equipment for waterand wastewater treatment intoOmnium de Traitementet de Valorisation (OTV).CGE takes control ofCGEA, later to becomeConnex and Onyx,followed by CompagnieGénérale de Chauffe,later to become Dalkia,thus bringing togetherVE’s four businesses.

1980

Groupe Montenay,created in 1860, joinsCompagnie Généralede Chauffe.The ONYX brand iscreated in 1989.

1986

Onyx acquires GroupeSoulier, which hasbecome one ofEurope’s biggestpaper and plasticsrecovery companies.

In the United States,US Filter is createdwith the objective ofbecoming the worldleader in the manufacture of watertreatment equipment.The company isacquired by CGE in 1999.

1990

CGE becomes one ofEurope’s leaders inwaste management

Foundation of theUrban EnvironmentInstitute (UEI) ) atJouy-le-Moutier, nearParis, a training andapprenticeship center providingwork-and-trainingprograms in environmental services.

1994

Reorganization:merger of CompagnieGénérale de Chauffeand GroupeMontenay to formCompagnie Généraledes Eaux’s EnergyServices division.

Creation in 1996 ofOnyx’s cleaning division, combiningUSP (railroad stationsand trains), Comatec(urban transportation)and Rénosol.

1995

CGE changes its nameto Vivendi, and theFrench subsidiary specializing in waterretains the nameCompagnie Généraledes Eaux.Acquisition of a 49%interest in the holdingcompany thatcontrols FCC, Spain’smarket leader inmunicipal waste management and No. 2in water and waste-water services.The Energy Servicesdivision adopts the name of DALKIA.

1998

Creation of VivendiEnvironnementto consolidate all environmental servicesactivities: VivendiWater (Water), Onyx(Waste Management),Dalkia (EnergyServices) and Connex(Transportation).

Acquisition of US Filter,market leader in watertreatment equipmentin the United States.

1999

Vivendi Environnement’sIPO on the Paris Bourseon July 20, 2000.Vivendi Universalretains over 70% of thecapital stock. Listing on the New York StockExchange follows in October 2001.

Signature of a partnership agreementon energy servicesbetween VE and EDF.

2000

VivendiEnvironnementassumes its independence in 2002, with thegradual withdrawalof Vivendi Universalfrom its capital.By December 2002,VU’s interest isreduced to 20.4%.

VivendiEnvironnement willchange its name toVeoliaEnvironnement,in 2003 after approval by the ShareholdersMeeting on April 30.

2002-2003

VE - 2002 Annual Report 14VE - 2002 Annual Report18


(*) Independent members: a member is deemed to be independent of the company’s management when he or she does not have any ties whatsoever with the company or its subsidiaries that may impair his or her freedom of judgment.

During 2002, the Supervisory Board conformed to the French New Economic Regulations (NRE) Act of May 15, 2001, which now limits the number of board mandates that may be held by one individual at any one time.

Members of the Supervisory Board>

Jean-René Fourtou• Chairman of the Supervisory Board

since September 23, 2002• Chairman and Chief Executive Officer

of Vivendi UniversalFrench nationality

Jean Azema (*)• Member of the Supervisory Board

since September 23, 2002• Chief Executive Officer of Groupama

French nationality

Daniel Bouton• Member of the Supervisory Board

since October 20, 2000• Chairman and Chief Executive Officer

of Société GénéraleFrench nationality

Jean-Marc Espalioux• Member of the Supervisory Board

since September 28, 2000• Chairman of the Executive Board of Accor

French nationality

Jacques Espinasse• Member of the Supervisory Board

since September 23, 2000• Senior Executive Vice President

and Chief Financial Officer of Vivendi UniversalFrench nationality

Paul-Louis Girardot• Member of the Supervisory Board

since October 20, 2000• Chairman of the Supervisory Board

of Cie Générale des Eaux• Member of the Supervisory Board

of Dalkia and director of Connex and OnyxFrench nationality

Richard Heckmann• Member of the Supervisory Board


of K-2 Inc. and Chairman of an NYSECommitteeUS nationality

Arthur Laffer (*)• Member of the Supervisory Board

since September 28, 2000• Founding member of the Congressional

Policy Advisory Board of the UnitedStates Congress

• Chairman of Laffer AssociatesUS nationality

Jean-Marie Messier• Member of the Supervisory Board

since April 21, 2000French nationality

Serge Michel• Member of the Supervisory Board

since October 20, 2000• Chairman of Soficot

French nationality

Georges Ralli• Member of the Supervisory Board

since October 20, 2000• Executive, administrative and supervi-

sory roles at Lazard Group companiesFrench nationality

Louis Schweitzer (*)• Member of the Supervisory Board

since February 5, 2003• Chairman and Chief Executive Officer

of RenaultFrench nationality

Murray Stuart (*)• Member of the Supervisory Board

since October 20, 2000• Former Director of Royal Bank

of Scotland Group plcUK nationality

Antoine Zacharias• Member of the Supervisory Board


of VinciFrench nationality

>

In March 2003, the Supervisory Board

introduced a code of conduct in line with

the recommendations of the Bouton

report, as VE intends to comply with best

practices in corporate governance.

Supervisory Board CommitteesTo perform its duties as effectively as possi-

ble, the Supervisory Board set up three

specialized committees during 2002, which

helped it to prepare its decisions. On March

3, 2003, these committees were replaced by

two new committees.

In 2002, the role of the audit and transac-

tion committee was to examine any

financial and accounting issues in order to

guide the Supervisory Board. In addition, it

monitored regulated agreements, particu-

larly those entered into between VE and its

shareholder Vivendi Universal.

The major issues examined by the commit-

tee during 2002 included the company’s

liquidity position and financing plan, as well

as the prospective acquisition of a share-

holding in UK water company Southern

Water. The committee met three times

during 2002.

A commitments committee, which has the

same members as the audit and transac-

tion committee, was responsible for

reviewing requests for guarantees. It met

on four occasions during 2002.

These two committees were replaced

on March 3, 2003 by the audit and com-

mitments committee, which is responsi-

ble for examining any financial and

accounting issues relating to VE’s finance

department, audit department and statu-

tory auditors. It has three members, who

were chosen on account of their financial

and accounting expertise, namely Jean-

Marie Espalioux (Chairman), Georges Ralli

and Murray Stuart. It met for the first

time on February 24, 2003.

Lastly, the remuneration committee, which

met once during 2002, was replaced on

March 3, 2003 by the appointments and

remuneration committee. It is responsible

for making proposals concerning executive

directors’ remuneration (fixed and variable)

…to Veolia Environnement


Changing the company’s name toVeolia Environnement is the culmina-tion of a rich, 150-year history.

Compagnie Générale des Eaux becameVivendi in 1998. After more than a centuryof focusing on the water managementsector, the company had graduallybecome a diversified, international group.

Then, in 1999, Vivendi split itself intotwo units: Vivendi Universal (media and

>

communications) and Vivendi Environ-nement (environmental services).

At the time of its IPO on the Paris Boursein July 2000, Vivendi Environnementwas therefore entirely focused onenvironmental services through fourdivisions, namely Water, WasteManagement, Energy Services andTransportation. Today, VE is the worldleader in this market with stronggrowth potential.

The move to a new name is logical for acompany that has become independent.

Veolia Environnement evokes thewind of change that marks the compa-ny’s fresh impetus and its determinationto remain permanently and exclusivelydevoted to its core business, serving theenvironment. The name was chosen tocreate a feeling of adherence–both inter-nally and externally–to an independentcompany that is proud of its roots.

Veolia Environnement is today a sound,international company. Drawing on itsextensive range of environmental serv-ices, it can meet the increasingdemands of a world where populationgrowth and urban development are cre-ating new needs.

For 150 years,Veolia has been developingexceptional know-how through its expe-rience with municipalities, residentialcustomers and private-sector companies.It can support these customers all

A clear strategyaround the world and propose integrat-ed solutions that exploit the obvioussynergy between its four businesses.

The cornerstones on which the com-pany’s worldwide leadership is based are:> technology that is at the forefront of

research and focuses on the needsexpressed by customers, to whom tai-lored solutions are proposed;

> an efficient, modern human resourcesstructure that promotes skills devel-opment and empowerment;

> rigorous management at every levelwith a view to maximizing the pro-fitability of each contract forcustomers and for the company.

Veolia Environnement’s goal is to goon expanding in this market, which hassignificant growth prospects, buildingin a selective and carefully thought-outmanner that complies with a policy ofsustainable development.



VE - 2002 Annual Report16


Jérôme ContamineSenior Executive

Vice President

Henri ProglioChairman of the

Management Board

Antoine FrérotHead of the Water division

VE’s corporate decision-making bodies worked through-out 2002 to further the interests of its shareholders whileupholding its values and commitment to good corporategovernance. The gradual withdrawal of Vivendi Universal,previously the core shareholder, and the resulting changesto its ownership structure, have given VE an opportunityto overhaul its corporate structure.At the Annual Shareholders Meeting on April 30, 2003,shareholders were to vote on the reorganization of VE’scorporate structure and the change in its name.

Since its IPO in July 2000, VE has operated as a sociétéanonyme with a Management and Supervisory Board,thereby splitting the executive and supervisory functions,as is customary for companies that have a dominantshareholder.

>

The Management BoardVE’s Management Board is chaired by Henri

Proglio. It meets as often as is required by

the company’s business activities. During

2002, it met 12 times.

There were no changes in its members dur-

ing 2002. It had six members, namely Henri

Proglio (Chairman), Jérôme Contamine,

Antoine Frérot, Denis Gasquet, Jean-Pierre

Denis and Andrew Seidel. Following the

changes made by the Supervisory Board on

February 5, 2003, it now has the following

seven members:

• Henri Proglio,

Chairman of the Management Board,

• Jérôme Contamine,

Senior Executive Vice President,

• Antoine Frérot,

Head of the Water division,

• Denis Gasquet,

Head of the Waste Management division,

• Olivier Barbaroux,

Head of the Energy Services division,

• Stéphane Richard,

Head of the Transportation division,

• Andrew Seidel,

Head of US Filter (North America).

During 2002, all the Management Board

members complied with the French New

Economic Regulations Act of May 15, 2001,

which put new restrictions on the

number of board mandates that one

person may hold.

The Supervisory BoardVE’s Supervisory Board currently has 14

members, 10 of whom were appointed

during 2000. In September 2002, three

members representing Vivendi Universal,

which is withdrawing from the company,

were replaced by three new members,

namely Jean-René Fourtou, Jacques

Espinasse and Jean Azema, with Jean-Réné

Fourtou taking over as Chairman of the

Supervisory Board. Lastly, Louis Schweitzer

was co-opted by the Supervisory Board on

February 5, 2003.

These changes, which gave the Supervisory

Board two new independent members, are

in line with the recommendations of the

Bouton report on corporate governance.

The Supervisory Board now has four inde-

pendent members, i.e., members who do

not have any ties of any kind whatsoever

with the company or with its subsidiaries

that may impair their freedom of judgment.

Lastly, three members are from outside

France, which illustrates the company’s

international dimension.

The Supervisory Board met five times dur-

ing 2002, in March, June, September,

November and December. During the first

three months of 2003, it met on a further

three occasions.

Attendance by members remained high

in spite of the changes triggered by

Vivendi Universal’s gradual withdrawal.

The aggregate attendance fees allotted

to members of the Supervisory Board for

2002 was €400,000. Of this total,

€398,125 were actually paid out during

2002, with specific amounts being

set aside and disbursed to members

who participated in the work of the

committees.

In line with Article 12 of the company’s by-

laws, each member of the Supervisory

Board must hold at least 750 shares for the

entire duration of his or her appointment.


Denis GasquetHead of the Waste

Management division

Olivier BarbarouxHead of the

Energy Services division

Stéphane RichardHead of the

Transportation division

Andrew SeidelHead of US Filter (North America)

VE - 2002 Annual Report 17>

HISTORICAL OVERVIEW >

The first oil crisis triggers research fornew technologies tosave energy. CGCresponds with solutions such as geothermal energyand recovery of lostenergy.

In 1975, CGE createSARP Industries forrecycling hazardouswaste. The new company rapidlybecomes Europe’s No. 1center for treatingtoxic liquid waste.1980

1973

The business consolidates:CGE groups together allits subsidiaries specializing in thedesign, engineeringand construction of equipment for waterand wastewater treatment intoOmnium de Traitementet de Valorisation (OTV).CGE takes control ofCGEA, later to becomeConnex and Onyx,followed by CompagnieGénérale de Chauffe,later to become Dalkia,thus bringing togetherVE’s four businesses.

1980

Groupe Montenay,created in 1860, joinsCompagnie Généralede Chauffe.The ONYX brand iscreated in 1989.

1986

Onyx acquires GroupeSoulier, which hasbecome one ofEurope’s biggestpaper and plasticsrecovery companies.

In the United States,US Filter is createdwith the objective ofbecoming the worldleader in the manufacture of watertreatment equipment.The company isacquired by CGE in 1999.

1990

CGE becomes one ofEurope’s leaders inwaste management

Foundation of theUrban EnvironmentInstitute (UEI) ) atJouy-le-Moutier, nearParis, a training andapprenticeship center providingwork-and-trainingprograms in environmental services.

1994

Reorganization:merger of CompagnieGénérale de Chauffeand GroupeMontenay to formCompagnie Généraledes Eaux’s EnergyServices division.

Creation in 1996 ofOnyx’s cleaning division, combiningUSP (railroad stationsand trains), Comatec(urban transportation)and Rénosol.

1995

CGE changes its nameto Vivendi, and theFrench subsidiary specializing in waterretains the nameCompagnie Généraledes Eaux.Acquisition of a 49%interest in the holdingcompany thatcontrols FCC, Spain’smarket leader inmunicipal waste management and No. 2in water and waste-water services.The Energy Servicesdivision adopts the name of DALKIA.

1998

Creation of VivendiEnvironnementto consolidate all environmental servicesactivities: VivendiWater (Water), Onyx(Waste Management),Dalkia (EnergyServices) and Connex(Transportation).

Acquisition of US Filter,market leader in watertreatment equipmentin the United States.

1999

Vivendi Environnement’sIPO on the Paris Bourseon July 20, 2000.Vivendi Universalretains over 70% of thecapital stock. Listing on the New York StockExchange follows in October 2001.

Signature of a partnership agreementon energy servicesbetween VE and EDF.

2000

VivendiEnvironnementassumes its independence in 2002, with thegradual withdrawalof Vivendi Universalfrom its capital.By December 2002,VU’s interest isreduced to 20.4%.

VivendiEnvironnement willchange its name toVeoliaEnvironnement,in 2003 after approval by the ShareholdersMeeting on April 30.

2002-2003

VE - 2002 Annual Report 14VE - 2002 Annual Report18


(*) Independent members: a member is deemed to be independent of the company’s management when he or she does not have any ties whatsoever with the company or its subsidiaries that may impair his or her freedom of judgment.

During 2002, the Supervisory Board conformed to the French New Economic Regulations (NRE) Act of May 15, 2001, which now limits the number of board mandates that may be held by one individual at any one time.

Members of the Supervisory Board>

Jean-René Fourtou• Chairman of the Supervisory Board


of Vivendi UniversalFrench nationality

Jean Azema (*)• Member of the Supervisory Board

since September 23, 2002• Chief Executive Officer of Groupama

French nationality

Daniel Bouton• Member of the Supervisory Board


of Société GénéraleFrench nationality

Jean-Marc Espalioux• Member of the Supervisory Board

since September 28, 2000• Chairman of the Executive Board of Accor

French nationality

Jacques Espinasse• Member of the Supervisory Board

since September 23, 2000• Senior Executive Vice President

and Chief Financial Officer of Vivendi UniversalFrench nationality

Paul-Louis Girardot• Member of the Supervisory Board

since October 20, 2000• Chairman of the Supervisory Board

of Cie Générale des Eaux• Member of the Supervisory Board

of Dalkia and director of Connex and OnyxFrench nationality

Richard Heckmann• Member of the Supervisory Board


of K-2 Inc. and Chairman of an NYSECommitteeUS nationality

Arthur Laffer (*)• Member of the Supervisory Board

since September 28, 2000• Founding member of the Congressional

Policy Advisory Board of the UnitedStates Congress

• Chairman of Laffer AssociatesUS nationality

Jean-Marie Messier• Member of the Supervisory Board

since April 21, 2000French nationality

Serge Michel• Member of the Supervisory Board

since October 20, 2000• Chairman of Soficot

French nationality

Georges Ralli• Member of the Supervisory Board

since October 20, 2000• Executive, administrative and supervi-

sory roles at Lazard Group companiesFrench nationality

Louis Schweitzer (*)• Member of the Supervisory Board

since February 5, 2003• Chairman and Chief Executive Officer

of RenaultFrench nationality

Murray Stuart (*)• Member of the Supervisory Board

since October 20, 2000• Former Director of Royal Bank

of Scotland Group plcUK nationality

Antoine Zacharias• Member of the Supervisory Board


of VinciFrench nationality

>

In March 2003, the Supervisory Board

introduced a code of conduct in line with

the recommendations of the Bouton

report, as VE intends to comply with best

practices in corporate governance.

Supervisory Board CommitteesTo perform its duties as effectively as possi-

ble, the Supervisory Board set up three

specialized committees during 2002, which

helped it to prepare its decisions. On March

3, 2003, these committees were replaced by

two new committees.

In 2002, the role of the audit and transac-

tion committee was to examine any

financial and accounting issues in order to

guide the Supervisory Board. In addition, it

monitored regulated agreements, particu-

larly those entered into between VE and its

shareholder Vivendi Universal.

The major issues examined by the commit-

tee during 2002 included the company’s

liquidity position and financing plan, as well

as the prospective acquisition of a share-

holding in UK water company Southern

Water. The committee met three times

during 2002.

A commitments committee, which has the

same members as the audit and transac-

tion committee, was responsible for

reviewing requests for guarantees. It met

on four occasions during 2002.

These two committees were replaced

on March 3, 2003 by the audit and com-

mitments committee, which is responsi-

ble for examining any financial and

accounting issues relating to VE’s finance

department, audit department and statu-

tory auditors. It has three members, who

were chosen on account of their financial

and accounting expertise, namely Jean-

Marie Espalioux (Chairman), Georges Ralli

and Murray Stuart. It met for the first

time on February 24, 2003.

Lastly, the remuneration committee, which

met once during 2002, was replaced on

March 3, 2003 by the appointments and

remuneration committee. It is responsible

for making proposals concerning executive

directors’ remuneration (fixed and variable)

…to Veolia Environnement

> HISTORICAL OVERVIEW

Creation ofCompagnie Généraledes Eaux (CGE) on December 14, 1853by Imperial decree. Itsfounders have twogoals: to irrigate thecountryside and tosupply water to townsand cities. The compa-ny wins its first publicservice concession tosupply water in Lyons.Seven years later, theParis municipalitysigns a contract forwater distribution for 50 years.

François Grandjouanwins a contract withthe Nantes municipal-ity to “clear the streetsof mud and waste,and convert it intomanure.”At about the sametime (1870), FrèresSoulier is created inRouen and Chauny tobuy, sell and collectrags and old paper.The two companiesjoin CGE in 1980 and1990 respectively.

Creation ofCompagnie GénéraleFrançaise deTramways (CGFT).The city conceptinitiated by BaronHaussmann revolu-tionized urban transportation andtriggered a boom in a new form of locomotion, thehorse-drawn tram,in response to theinadequacy of theomnibus. CGFT oper-ates the first tramservices in Le Havre,Nancy and Marseilles.The company joinsCGE in 1980.

Venice, Italy: the firstsuccess outside France.A treaty grants CGEthe rights to waterproduction and distribution in Venice.It is followed byConstantinople in 1992and Porto in 1883.In 1884, CGE extendsits business for the first time towastewater treatmentin Rheims.

1853 1867 1875 1880

Creation of Fomentode Obras yConstrucciones (FOC),a Spanish companyspecializing in civilengineering andmunicipal services,wastewater treatment, wastecollection and transportation. FOC,which later becomesFCC, has been VE’sstrategic partner inSpain since 1998.

Ozone, a major techno-logical discovery.A process using ozoneto filter and sterilizewater is developed tocomplement or replacechlorine.Implementation startsfour years later.The investment inresearch and development increasesthroughout the century, culminating inthe creation of AnjouRecherche, CREED andEurolum, VE’s threeresearch entities.

1900 1905

Charles Blum createsCompagnie Générale d’Entreprises Automobiles (CGEA),with the aim of buying, selling,maintaining and operating a fleet ofindustrial vehiclesequipped with theautomobile front-wheel drive inventedby Georges Latil.In 1919, CGEA launchesinto the householdwaste collection market in Paris.The company joinsCGE in 1980.

1912

Léon Dewailly foundsChauffage Service, acompany specializingin the operation of heating and air conditioning systems. In 1960,Chauffage Servicemerges withCompagnie Généralede Chauffe (CGC),created in 1944,which joins CGE in 1967.

1935

Compagnie Généraledes Eaux celebratesits 100th anniversary:drinking water is nowsupplied to 8 millionpeople over 10,000 kilometers of supplynetwork in France.The company extendsits business to newservices such as household waste collection.

1953

Virtually all the contracts for mainte-nance of America’sNATO bases in Franceare awarded to CGC.In addition to maintaining heatingfacilities, the companyundertakes a widerange of maintenanceactivities.The experience is theprecursor of facilitiesmanagement, nowoffered by Dalkia.

1967The group operates its first waste incineration plants.

1958

150 YEARS OF SERVING THE ENVIRONMENT

From Compagnie Générale des Eaux…VE - 2002 Annual Report11



VE’s corporate structure with a Manage-

ment and Supervisory Board was originally

introduced by its former core shareholder,

Vivendi Universal, and has served its pur-

pose. Since Vivendi Universal held just

20.4% of VE’s capital at December 31, 2002,

it was time to overhaul the corporate struc-

ture. Consequently, VE proposed adapting

its corporate decision-making bodies to

reflect its newly gained independence and

improve its efficiency.

A resolution was proposed at the Annual

Shareholders Meeting of April 30, 2003 to

give the company a Board of Directors with

even tighter corporate governance rules. In

particular, an emphasis will be placed on

the appointment of more independent

directors.

ADOPTION OF A CHARTER OF BUSINESS ETHICSOn February 5, 2003, a business ethics

charter called “Ethics, conviction and

responsibility” laying down a code of con-

duct for the company’s dealings with all its

employees and partners was adopted. This

charter illustrates VE’s resolve to adopt the

best corporate governance practices. Under

the charter, an ethics committee will be set

up during 2003, which will be chaired by

Henri Proglio. It will be responsible for

examining, coordinating and settling any

issues relating to compliance with the fun-

damental corporate values, difficulties

encountered and desired improvements.

A NEW CORPORATE STRUCTURE:SWITCH TO A BOARD OF DIRECTORS

>

Disclosure of the remuneration paid to senior executives during 2002

Total gross remuneration, including benefits in kind, paid to senior executives during 2002 was as follows:

Remuneration paid to members of the Management Board > Total gross remuneration paid to all members of the Management Board

Stock option plans granted to the Management Board > Share subscription or purchase options granted in 2002 to all members of the Management Board with an exercise price of €37.53 and expiring on January 29, 2010

Attendance fees paid to members of the Supervisory Board

(1) includes the remuneration paid by VE and controlled companies(2) out of a total budget of €400,000.

For more detailed information about executive directors, please consult the document de reference, which is available upon request and may be downloaded from the company’s Web site.

i

€4,357,691 (1)

465,000 options,

€398,125 (2)

and the amount and allocation of atten-

dance fees, as well as reviewing stock

option plans for senior executives. In addi-

tion, the committee oversees the selection

and proposes the appointment of new

executive directors. It has three members,

namely Serge Michel (Chairman), Paul-Louis

Girardot and Louis Schweitzer.

The current plan is to leave in place the

two new committees set up by the

Supervisory Board during March 2003 and

to adapt them to the needs of the Board

of Directors, when it is introduced.

Following the Supervisory Board’s lead,

each of the new committees was given a

code of conduct.


* Total workforce managed at December 31, 2002, including 100% of FCC’s employees** Includes 100% of earnings from the Water and Waste Management businesses of Proactiva,a joint-venture company owned by FCC and VE*** Excludes production, trading and sale of electricity

10

VE is the only company in the world that focuses entirely on environmental services, covering thewhole range in each of its four components: Water (water cycle management), Waste Management(collection, management, treatment and recycling of waste), Energy Services and Transportation.Through its core business, VE addresses the planet’s major challenges in sustainable development.

The fit between its four divisions, combined with its international presence, enables the company todevelop integrated service packages that offer a comprehensive, tailored response to the environ-mental problems faced by customers in both the public and private sectors around the world.

• Consolidated revenue of €30 billion in 2002• Recurring net income of €429 million• 302,000 employees managed*

World leader in environmental services

>

• Operations in nearly 100 countries around the globe• 57% of consolidated revenue generated outside France• Over 95% of revenue generated in industrialized countries

with stable political and monetary systems

One core business: serving the environment

A worldwide network

No. 1 worldwide in the water industry2002 revenue: €13.3 billion**110 million people around the world provided with water and wastewater services

No. 2 worldwide and one of the world’s leaders in hazardous industrial waste2002 revenue: €6.1 billion**54 million metric tons of waste treated by Onyx around the world in 2002

No. 1 in Europe for energy services***2002 revenue: €4.6 billion70,000 facilities managed

Waste management

Energy services

TransportationNo. 1 private operator of surface passenger transportation in Europe2002 revenue: €3.4 billionOver 4,000 municipal customers

Four divisions

Water


Earnings

20022000 2001

Change in consolidated EBIT(in millions of euros)

1,9712,0131,650

The 2.1% decline in EBIT in 2002 is attributable to the sale of non-core businesses and the fall in the dollar. Excluding non-core divestments, all of the divisions contributed to 1.9% growth in EBIT, or 3.2% at constant exchange rates.

Breakdown of 2002 EBIT by division

Water

Waste management

Energy services

Transportation

FCC*

52.0%

19.5 %

12.4%

5.9 %

12.7 %

In 2002, the Water Division’s contribution to EBIT, calculated solely on the basis of core businesses (i.e., excluding businesses sold or in the process of being sold), amounted to 48.7%.

* VE share (49%)

Breakdown of 2002 EBIT by geographical area

France

Rest of Europe

Americas

Rest of the world

30 %

38 %

25 %

7 %

The breakdown by geographical area shows the decline in the contribution from the Americas and France in favor of other areas. This change was due principally to the disposal of US Filter’s non-core businesses, the market for equipment in the United States and the ramping up of contracts won between 2000 and 2002 in Central Europe and Asia.

Change in recurring net income(in millions of dollars)

2001 2002

Workforce at December 31

2000

302,000295,000269,000

The weighted average consolidated workforce was 257,000 in 2002, compared with 239,000 in 2001 and 215,000 in 2000.

(100% of all subsidiaries, including FCC)

The growth in recurring net income in 2002 reflects solid earnings from each business despite difficult economic conditions, together with the successful strengthening of the company’s financial structure during the year.

342.0

429.0420.0

20012000 2002

Change in consolidated net income(in millions of euros)

614.8

339.2(2,251.2)

20012000 2002

Taking into account an exceptional goodwill write-down and restructuring costs, consolidated net income amounted to €339.2 million in 2002.

>VE - 2002 Annual Report20


VEOLIA ENVIRONNEMENTAND THE STOCK MARKET

SHARE PRICE PERFORMANCE

180

160

140

120

100 100

80

60

40

20

0

Performance of VE shares on the Paris Stock ExchangeComparison with the CAC 40 and DJ Stoxx Utilities indexes (base of 100 on July 20, 2000, the date of the IPO)

VE

VE

CAC 40

CAC 40

DJ STOXX UTILITIES

DJ STOXX UTILITIES

2001 20022000J A S O N D J F M A M J J A S O N D J J J A S O N D J F MF M MA

>

VE shares were

selected in

November 2002 by

Éthibel, an independent Belgian

rating agency specializing in

sustainable development.

By awarding VE its label, Éthibel

recognizes that the company

has high ethical, social

and environmental standards

satisfying the strictest

sustainable development

criteria.

The concept of a social rating

by specialized agencies is a new

idea, which requires further

refinement. But ethical and

socially responsible investment

indices are finding growing favor,

especially among US and UK

investors.

Investment funds specializing in

these values are currently

experiencing an impressive rate

of growth in the United States,

as well as in Europe. By securing

this first ethical label of quality,

VE has positioned itself as a

company meeting the

sustainable development criteria

of leading investors.

First “socially responsible” rating

>

Éthibel

This capital increase will have a positive

structural impact by helping to streng-

then the company’s finances. The arrival

of major new institutional shareholders

illustrated the confidence and trust that

the company commands.

Since the beginning of 2003, the stock mar-

kets, including the Paris stock exchange,

have continued to head sharply lower, and

VE shares have not escaped unscathed.

In France as in the United States, 2002

was a very difficult year on the stock mar-

ket for all leading companies. Two addi-

tional factors were a drag on the per-

formance of VE shares:

- the withdrawal of majority shareholder

Vivendi Universal during the year;

- the dilutive impact of the €1.5 billion

capital increase carried out in August

2002 (issuance of new shares accounting

for 17% of the capital stock).

Stock market data

Year’s high/low (in €) Euronext Paris

Last traded share price in 2002 (in €)

Average daily trading volume (thousands of shares)

Number of shares outstanding at Dec. 31 (millions)

Market capitalization at Dec. 31 (in billions of €)

Recurring net income per share (in €)

Net earnings per share (in €)

Net dividend* (in €)

Total dividend*** (in €)

Payout ratio (as a % of recurring EPS)

2001

51.40-36.10

37.04

688

346.20

13.00

1.20

(6.50)

0.55

0.825

46%

2002

39.20-17.18

22.22

1,118

405.10

9.00

1.16

0.92

0.55**

0.825

47%

2000

49.00-32.90

45.98

549

346.20

16.10

1.24

2.23

0.55

0.825

44%

(*) excluding the avoir fiscal tax credit(**) subject to the approval of the Shareholders Meeting on April 30, 2003(***) assuming an avoir fiscal tax credit of 50%, for which French individual investors and certain legal entities qualify



Recomposition of theshareholder structure Vivendi Universal’s withdrawal during 2002

allowed a number of new institutional

investors, including some of the leading

names on the Paris financial market, to enter

VE’s capital. These investors came on board

in two stages, with the first group entering

through the August capital increase, which

they underwrote, and the second group fol-

lowing on December 24, when Vivendi

Universal sold another 20.4% interest in VE’s

capital. Most of these investors, the majority

of whom are from France, have undertaken

to hold onto their shares for a certain period,

mirroring the holding commitments previ-

ously given by Vivendi Universal. Ultimately,

the increased free float resulting from these

transactions will help enhance the share’s

liquidity in the market.

At the beginning of January 2003, the total

number of shareholders identified by VE

came to around 300,000. Shareholders

from outside France accounted for 28%

Vivendi Universal

New investors*

Free float

20.4%

20.4%

59.2%

Ownership of VE’s capital stock at December 31, 2002

Transaction

Formation of VEIPOSale of a 9.3% interest by VU*Sale of a 15.5% interest by VU€ 1.5 billion capital increase by VESale of a 20.4% interest by VU,plus a 20.4% interest in the form of options exercisable at a price of €26.5 by Dec. 2004If all the above options are exercised

Date

December 1999 July 20, 2000December 17, 2001 June 25, 2002 August 2, 2002December 24, 2002

December 24, 2004

Interest held by VU

100%72.3%63%

47.5%40.8%

20.4%

0%

Changes in Vivendi Universal’s shareholding in VE

*Share subscription options exercisable by March 2006 at a price of €55 per share were granted by

VU at the time of this sale.

>

Vivendi Universal’s withdrawal Vivendi Universal’s drive to focus on its

media and communication businesses,

which was initiated in July 2000, continued

during 2001 and gained pace during 2002. It

led to a significant decrease in Vivendi

Universal’s shareholding in VE from 63% at

year-end 2001 to 47.5% in June 2002, 40.8%

in August following VE’s capital increase

and finally to 20.4% by year-end 2002.

The process is likely to be completed by

December 24, 2004 in the event that

the options on the remainder of Vivendi

Universal’s interest in VE granted to the

new investors are exercised in full.

of the total. Of the foreign institutional

investors, those in the United Kingdom and

the United States represented the largest

shareholder category.

*New investorsCaisse des Dépôts et Consignations, Groupama, BNPParibas, Société Générale, EDF, Dexia, AXA, AGF,Eurazeo, Caisse Nationale des Caisses d’Epargne,Crédit Lyonnais, Crédit Agricole Indosuez(Switzerland), Crédit Mutuel CIC, Generali, CNP,Médéric Prévoyance,Wasserstein Family Trust.

The figure of 20.4% reflects only the shares coveredby the holding commitments arising from the sale ofVivendi Universal’s shareholding in December 2002.The so-called new investors may also hold other VEshares, which they acquired on the market or as partof a previous sale by Vivendi Universal. Any suchshares are accounted for under the free float figureshown above.



SHAREHOLDER’S NOTEBOOK

Annual General MeetingApril 25, 2002: shareholders’ meetingThe AGM remains a key date in the calen-

dar for shareholders. Last year’s meeting

was held at the Salle Pleyel in Paris on

April 25 and was attended by over 1,000

shareholders.

They approved the payment of a net dividend

of €0.55 per share for 2001,which was paid

out on May 6, 2002. Taking into account the

avoir fiscal tax credit of 50%, the gross divi-

dend paid in 2002 came to €0.825 per share.

August 20, 2002: meeting of holders of

VE 1.50% 1999-2005 bonds convertible

and/or exchangeable into new or existing

Vivendi Universal shares. A majority of

bondholders voted to adopt the proposed

resolutions, thereby waiving the guaran-

tee granted by Vivendi Universal and

concurrently the early redemption clause

in the event of default by Vivendi

Universal. In return, the nominal rate of

interest on the bonds was increased from

1.50% to 2.25%.

In 2003, the Annual Shareholders Meeting

is set for April 30 at the Carrousel du Louvre

in Paris.

Management is to propose payment of a net

• Around 600 were present at the meet-

ing in Toulouse on November 19.

VE also participated at the Salon

Actionaria shareholders’ fair in November

at the Palais des Congrès in Paris.

Shareholders’ clubThe shareholders’ club, which was set up in

October 2001, enjoyed its first full year in

operation during 2002. By year-end 2002, it

had 30,000 registered members.

The goal of the club is to improve awareness

of the company and its activities, as well as

to foster better communication with indi-

vidual shareholders.

A guide for VE shareholders was published

for the first time in 2002 to answer all the

questions that investors are likely to have.

During June, it was sent out to all current

members of the shareholders’club.The guide

is due to be updated during 2003, and all

members will receive a copy of the updated

version. Various other documents (share-

holders’ newsletter and the annual report)

were also sent to members during 2002.

Creation of a consultative panelof shareholders2003 will see the creation of a consultative

panel of nine shareholders, one of whom will

be an employee shareholder. The role of this

panel, which is intended to promote closer

ties between the company and its individual

shareholders, will be to come up with new

ideas and make proposals.

Its purpose is to gain a better understanding

of shareholders’ expectations so that they

can be satisfied by developing an increa-

singly transparent investor relations strategy

that is tailored to their needs.

>

dividend of €0.55 per share, representing a

gross dividend of €0.825 per share (assum-

ing an avoir fiscal tax credit of 50%), for the

approval of shareholders. This will be fol-

lowed by an Extraordinary General Meeting,

which will propose a change in VE’s corporate

structure and its name.

Regional shareholder presentations in FranceIn 2002, two meetings were organized, one

in Bordeaux and one in Toulouse, between

shareholders and Henri Proglio, Chairman of

the Management Board. These meetings

were hosted by Michel Kempisky, editor of

the Journal des Finances. At each event, two

round table sessions were arranged for

shareholders who were interested in partici-

pating in debates about either the

company’s strategy and developments

affecting its businesses or the geographical

distribution of VE’s capital stock, the stock

market and financial matters.

• Close to 1,000 shareholders attended

the meeting in Bordeaux on October 24.

34

INDUSTRIAL AND TERTIARY CUSTOMERS: WORLD LEADERSHIP POSITION

Our goal is to be a partner in our industrial customers’ growth,

offer them innovative outsourcing solutions and build

long-term, renewable and environmentally sound partnerships

with them.

CUSTOMERS >

US Filter - Conoco facility at Lake Charles, Louisiana


23

For investors and financial analysts,

an Investor Relations team is available

to answer your questions in either French

or English:

Nathalie Pinon

Director of Investor Relations

Veolia Environnement

36-38, avenue Kléber - 75116 Paris

Tel. (France): +33 1 71 75 01 67

Fax: +33 1 71 75 10 12

E-mail: [email protected]

Contact in USA: Brian Sullivan

Tel.: +1 401 737 41 00


Those interested may also contact

the Shareholders’ Department by:

calling 0 805 800 000which is toll-free when called from a

fixed-line telephone in France

E-mail: service [email protected]

Writing to: Veolia Environnement’s

Shareholders’ Department,

36-38 avenue Kléber, 75116 Paris

Publications for shareholdersEach year VE publishes several documents

for its shareholders, including:

- an annual report;

- the document de référence approved by

the COB (in French);

- a Form 20-F annual report complying

with SEC standards (in English);

- newsletters for shareholders, produced

twice a year;

- a sustainable development report;

- and a guide for individual shareholders,

published for the first time in 2002.

These documents are available upon

request and most of them can also be

downloaded from the company’s Web site.

VE regularly publishes financial notices in

the business and financial press to inform

shareholders about its latest earnings

trends, as well as significant developments

affecting the company.

A new Web site for individualshareholdersVE’s Web sites feature the latest news

about the company, its business activities

and financial results.

www.veoliaenvironnement.com presents

general information about the company,

while

www.veoliaenvironnement-finance.com

is dedicated to financial information.

A special area for individual shareholders

was added to VE’s general Web site in

October 2002. Click on “Shareholders” to

Contacts for investors:>

>

Key dates in 2003 for shareholders’diaries• Shareholders’ newsletter: April.• Annual Shareholders Meeting:

April 30, Carrousel du Louvre, Paris.• First-quarter revenue statement:

first week of May.• Payment of the dividend:

early May.• First-half revenue statement:

early August.• First-half financial statements:

late September.

• Shareholders’ newsletter: October.• Nine-month revenue statement:

early November.

access this section through the corporate

site, or enter

www.actionnaires.veoliaenvironnement.com

to access it directly.

This new section contains all the infor-

mation likely to interest individual

shareholders, including share price data,

transactions with an impact on the capital

stock and news of significant developments

affecting the company. They may also

download the annual report, the 20-F

report and the sustainable development

report published by the company. The

Web site is updated on

a regular basis.

An e-mail alert service

informing subscribers

directly of VE’s main press

releases is also available.

> 16,600 employees> Revenue of 30.5 billion,

of which:

WaterWaste management Energy servicesFCC

0.30.2

n.m.n.m.

South America


of which:

1.81.40.10.1

North America

WaterWaste managementTransportationFCC

VE’S WORLDWIDE PRESENCE


AN INTERNATIONAL COMPANY>

In 2002, 57% of VE’s consolidated

revenue was derived from outside

France.

Dalkia partners with Agenda 21in Lille

In 2002, Dalkia opened the cogeneration plant servingRésonor, Lille’s district heating network, which Dalkia hasbeen operating for 20 years. The plant runs on a 45 MW gasturbine and simultaneously produces electricity, whichgoes to the EDF network, and heat, which is used by thecity’s heating network. Dalkia committed to reducing sulfurdioxide emissions by 75%, reducing rates for users by 15%and incorporating the facility into its urban environmentarchitecturally and through landscaping.

E N E R G Y S E R V I C E S

CUSTOMERS >VE - 2002 Annual Report 33

>

Connex, the expert in public transportation management

In Europe, Connex operatestram and light rail systemsin Görlitz and Berlin,Germany;Stockholm,Sweden;and Rouenand St. Étienne, France.It will be operating the plannedBordeaux tramway in Franceand partnering in Spain with FCC to operate Barcelona’s metro.In the United States, it signed a contract at the beginning of2003 to operate the Boston commuter rail network.

T R A N S P O R T A T I O N>

With over 100 years

of experience in

partnerships with

municipalities,

VE has acquired an

expertise in outsourced

management that

today goes well beyond

France’s borders.

“

”

personalized service, such as waste pick-up

or transportation on demand.

VE does all it can to enable its municipal

customers to develop close ties with users

of the public services it operates.

Well-established leadership in outsourcing With over 100 years of experience in part-

nerships with municipalities, VE has

acquired an expertise in outsourced man-

agement that today goes well beyond

France’s borders. This type of partnership

provides an efficient and reassuring frame-

work for the operation of public services

such as water distribution, transportation,

wastewater services and waste processing

and elimination.

VE’s international expansion combined

with its wide range of complementary serv-

ices have allowed it to develop a variety of

suitable contract models. Thus the compa-

ny now has the competencies required to

deal with all types of need. Of variable dura-

tion, the contracts must take into account

complex legal constraints and different

national regulations and contexts. VE can

also organize financing for infrastructure

and seek out appropriate investors and

lenders.

VE is at the forefront of a new trend toward

offering municipalities around the world

customized, integrated environmental

management services.

In 2002, VE signed public-private partner-

ships with Stockholm, Sweden; The Hague,

Netherlands; Vilnius, Lithuania; Indianapolis,

United States; Alexandria, Egypt; Tetouan

and Rabat, Morocco; and Shanghai, Baoji,

Zhuhai and Guangzhou,China.The contracts

represent good quality, efficient public serv-

ices, along with cooperation between the

public authority and private operator.

> Ireland Contract to operate Dublin's new Luas light rail network, which will enter service in late 2003.

> United KingdomDalkia was the only energy services company selected to participate in the first-ever CO2 Emissions Trading Scheme auction set up by the UK authorities.

> United Kingdom Waste collection and street cleaning contract for the City of Westminster in London (200,000 inhabitants and 1 million visitors per day) renewed for seven years. Waste collection and treatment and street cleaning contract with the district of Camden. Waste collection and recycling contract for the city of Portsmouth (population of 190,000).

• Contract for 15 years to treatindustrial effluents at the Florange site in the Moselle region awarded by Arcelor Packaging, (steel industry).

• Contract to manageindustrial effluents produced by Smurfit Cellulose du Pin subsidiary for 12 years.

Water

Waste management

Energy services

Transportation

Contract to manage water and wastewater services at the Big Springs refinery in Alon, Texas, for 20 years.

> United StatesIndianapolis: 20-year contract to manage the water service for the city’s 1.1 million inhabitants.

> FranceAcquisition of Transports Verney, which operates in over 30 departments of France and rounds out Connex’s existing road-based passenger transportation services in France.

• District heating networkconcession at Mons-en-Barœul, renewed for 25 years, with the installation of a 7 MW cogeneration plant.

> ItalyContract signed to supply electricity, heat and cooling services to Manulifilm, one of the leading European manufacturers of packaging film.

> ChileMaipu landfill site serving the Santiago metropolitan area brought into service by Proactiva. The site, which is designed to handle 700,000 metric tons of waste per year for 23 years, is a showcase for VE’s technology.

• Thermal servicesmanagement contract renewed by OPAC Paris.

• New facilitiesmanagement contract awarded by the Crédit Mutuel du Nord bank covering the 220 branches of its North-Europe network.

• Upgrade of the Achèreswastewater treatment plant, which handles a large proportion of the wastewater in the Paris region.

MAIN EVENTS OF 2002

25 VE - 2002 Annual Report

CUSTOMERS >


Prague

In January 2001, V. Water won an international invitation to ten-der organized in connection with the privatization of the Praguewater company (PVK).The Prague municipality was very satisfiedwith the V.Water teams’performance in managing water servic-es for the 1.2 million people in the city and its surrounding areas,and the help they providedduring the floods of 2002. Sosatisfied that, only one yearafter the signature, it exten-ded the term of what wasalready a model contractfrom 13 to 28 years.

W A T E R>

Charleston

In 2002, Onyx began managing the waste-to-energy plantin Charleston County, South Carolina. This was the fifthtime in four years that Onyx had taken over operation ofsuch a plant in the United States. Onyx’s North Americansubsidiary is demonstrating its capacity to respond to theexpectations of municipalities when it comes to wasteincineration, from designing and building plants to operat-ing them and taking over their operation.

W A S T E M A N A G E M E N T>

The company’s found-

ing principle of solidari-

ty is a hallmark of its

relations with its

municipal customers.

“

”

Facilitating and providing sup-port everywhere in the worldfor transfers of public serviceemployees In every new contract signed in 2002, VE

offered operational value added in the form

of performance levels, technology and inno-

vation. But this was always accompanied by

value added in human resources and labor

relations.

In Tangiers and Tetouan, Morocco; in

Shanghai, China; in Ostrava, Czech Republic;

and Vilnius, Lithuania, VE rehired and inte-

grated the former municipal employees. It

also provided support for the transfer of these

public-sector workers in order to help them

become specialists in environmental services.

Training, knowledge transfer and staff

motivation programs are all means of accel-

erating the switch to a more effective and

efficient public service.

VE’s recognized expertise in human resources

management often gives the company a

major advantage in international tenders.

A dual challenge for VE: satisfyingthe municipal customer as well asthe consumer VE’s municipal customers are attaching

more and more importance to their citi-

zens’ opinions on the services they receive.

Surveys are carried out regularly on passen-

ger satisfaction with the punctuality and

reliability of their transportation network,

as well as the cleanliness of the trains and

staff accessibility. In the waste manage-

ment field, the new requirement translates

into surveys on the street or at people’s

homes to find out what citizens think of the

waste collection service.

VE makes it a point to reassure civic leaders

of its good relations with consumers and

provision of local service by the increasing

reach and number of VE call centers and

customer service centers. Consumers in

London, Stockholm, Rennes and, soon,

Shanghai can call or log on to Web sites for

information about rates, opening hours,

service connections, billing and opening

an account. They can also request mainte-

nance or emergency repairs or order a

> ChinaDesign and operation for a period of eight years in Guangzhou of the Xingfeng household waste landfill site with a capacity of 20 million cubic meters, which will be able to process 5,000 metric tons of waste per day during 2003. This site, which conforms to the latest international standards, will provide a showcase for VE in Asia.

Shanghai: 50-year contract to manage water services for Pudong, the city’s new business district (1.9 million inhabitants).

Contracts to manage water service for Baoji (500,000 inhabitants) and wastewater service for Zhuhai (1.2 million inhabitants).

> MalaysiaOutsourcing services contract for 20 years to manage water services at the Kertith petrochemicals complex for Petronas, Malaysia’s No. 1 oil group.

> SingaporeStreet cleaning contract won for downtown Singapore, complementing the waste collection agreement signed in 2001.

> MalaysiaContract to illuminate the Petronas twin towers in Malaysia, the world’s tallest occupied buildings (452 meters high) won by Dalkia subsidiary Citelum, which specializes in public lighting and building illumination systems.

> AustraliaContract won by Onyx for integrated industrial waste management for the 670 sites across Australia belonging to Boral Limited, a building and construction materials supplier.

> EgyptAlexandria waste management contract (3.5 million inhabitants), which started up in October 2001, reached full speed. It covers the collection and processing of 2,500 metric tons of household waste per day, making previous dumps safe, the construction of a landfill site and transfer station, and street cleaning services.

> MoroccoContract to supply municipal waste, wastewater and electricity services for Rabat/Salé and the surrounding region for 26 years (population of 2 million).

> Czech Republic Dalkia won the tender launched by the city of Ostrava leading to the acquisition of ZTO, which supplies the city’s heating services. With its 315 boiler plants, 160 kilometer network and 233 substations, ZTO supplies heat to 84,000 residential units and 900,000 square meters of commercial space.

> Czech RepublicPrague: 13-year contract won in 2001 to operate water services for Prague and the surrounding area (population of 1.2 million) extended to 28 years.

> Sweden Contract to operate the metro and three tram lines in Stockholm extended for five years. Three other tenders were won in Sweden during 2002.

Acquisition of five companies from the Maintech group specializing in industrial maintenance.

> Benelux Technical maintenance contract won by Dalkia for the European Commission’s entire real estate portfolio (68 buildings).

> The NetherlandsAcquisition of DBU, a company specializing in technical services and the supply of mechanical and electro-technical systems for industry.

Design, construction and operation of wastewater plants for The Hague Hague and surrounding region for a period of 30 years.

> GermanyOpening in December of the Lausitzbahn rail network in the Görlitz region. Connex now operates two long-distance inter-regional rail links between the south of eastern Germany, Berlin and the Baltic Sea.

> SloveniaAcquisition of Maribor’s urban and regional network (250 motorcoaches and buses).

28VE - 2002 Annual Report

Privatization, the creation of new district authorities and a heightened

sensitivity to environmental issues, such as water resource

management, air pollution, transportation policy and energy consump-

tion, provided VE with many opportunities in 2002 to highlight the

value of its strategy of customized, integrated services

for municipalities.

CUSTOMERS >

30

MUNICIPALITIES:THE NEW RULES OF THE GAME

Sydney, Australia

Shanghai

In 2002,VE won an exceptional 50-year contract to manage thewater service in Pudong, the business district of Shanghai,China’s biggest city. Then at the beginning of 2003, the compa-ny signed a new public-private partnership agreement with theShanghai municipality to treat the city’s household waste.Under the new contract, VE will be managing one of China’sbiggest waste-to-energy plants in the downtown Puxi district.The plant will treat and recycle 1,500 metric tons of waste per day.


W A S T E M A N A G E M E N T

The Hague

In 2002,V.Water won a30-year contract worthan estimated total of€1.5 billion to design,build and operate thecity and surroundingregion’s wastewatertreatment plants.

W A T E R>>

65%

Municipal customers:

approximately

of consolidated revenue in 2002

Increased orders in 2002 compared with 2001

Mainly long-term contracts (up to 50 years)

New customers, newmunicipal issues:VE’s response to the challenges

Metropolitan area districts:new rules of the game in FranceA law passed in 1999 has obliged French

municipalities to group together into metro-

politan area districts.

Such districts are faced with more com-

plex territorial problems, large-scale envi-

ronmental projects and the political will

to harmonize services, prices and solu-

tions. These factors have made them

more demanding customers.

But the new context has allowed VE to fur-

ther develop the diversity of its offerings,

organize complete technical processes

and become a consultant on technical

design and legal and health matters. The

company has the capacity to tap the com-

plementary expertise in its divisions

when strong synergies are called for, such

as is the case for wastewater sludge treat-

ment, drinking water quality, logistics and

energy recovery.

In 2002, the high renewal of these contracts

confirmed VE’s capacity, as the leader in

environmental services, to deliver personal-

ized and convincing solutions.

A partner for municipalities,whatever the circumstancesThe company’s founding principle of soli-

darity is a hallmark of its relations with its

municipal customers. VE is particularly

attentive and responsive to any problems

encountered by its customers during the

duration of their contracts. In 2002, a year of

many weather-related disasters, VE demon-

strated its commitment to its municipal

customers time and time again. For exam-

ple, during flooding in the Gard area in

France, Onyx organized clean-up operations

and Dalkia got hot water systems running

at affected sites. In the Czech Republic capi-

tal, Prague,V.Water and Dalkia joined forces

to keep the city supplied with drinking

water during the terrible flooding that

struck the city in the summer.


of which:

WaterWaste managementEnergy servicesTransportation

0.60.4

n.m.0.1

Asia and Oceania


of which:

WaterWaste managementEnergy servicesTransportation

0.50.1

n.m.n.m.

Africa and Middle East


of which:

WaterWaste managementEnergy servicesTransportationFCC

8.54.04.53.22.5

Europe

EuroAN INTERNATIONAL COMPANY


*The number of employees shown includes the total workforce managed atDecember 31, 2002, including 100% of FCC employees.

CUSTOMERS >


Prague

In January 2001, V. Water won an international invitation to ten-der organized in connection with the privatization of the Praguewater company (PVK).The Prague municipality was very satisfiedwith the V.Water teams’performance in managing water servic-es for the 1.2 million people in the city and its surrounding areas,and the help they providedduring the floods of 2002. Sosatisfied that, only one yearafter the signature, it exten-ded the term of what wasalready a model contractfrom 13 to 28 years.

W A T E R>

Charleston

In 2002, Onyx began managing the waste-to-energy plantin Charleston County, South Carolina. This was the fifthtime in four years that Onyx had taken over operation ofsuch a plant in the United States. Onyx’s North Americansubsidiary is demonstrating its capacity to respond to theexpectations of municipalities when it comes to wasteincineration, from designing and building plants to operat-ing them and taking over their operation.

W A S T E M A N A G E M E N T>

The company’s found-

ing principle of solidari-

ty is a hallmark of its

relations with its

municipal customers.

“

”

Facilitating and providing sup-port everywhere in the worldfor transfers of public serviceemployees In every new contract signed in 2002, VE

offered operational value added in the form

of performance levels, technology and inno-

vation. But this was always accompanied by

value added in human resources and labor

relations.

In Tangiers and Tetouan, Morocco; in

Shanghai, China; in Ostrava, Czech Republic;

and Vilnius, Lithuania, VE rehired and inte-

grated the former municipal employees. It

also provided support for the transfer of these

public-sector workers in order to help them

become specialists in environmental services.

Training, knowledge transfer and staff

motivation programs are all means of accel-

erating the switch to a more effective and

efficient public service.

VE’s recognized expertise in human resources

management often gives the company a

major advantage in international tenders.

A dual challenge for VE: satisfyingthe municipal customer as well asthe consumer VE’s municipal customers are attaching

more and more importance to their citi-

zens’ opinions on the services they receive.

Surveys are carried out regularly on passen-

ger satisfaction with the punctuality and

reliability of their transportation network,

as well as the cleanliness of the trains and

staff accessibility. In the waste manage-

ment field, the new requirement translates

into surveys on the street or at people’s

homes to find out what citizens think of the

waste collection service.

VE makes it a point to reassure civic leaders

of its good relations with consumers and

provision of local service by the increasing

reach and number of VE call centers and

customer service centers. Consumers in

London, Stockholm, Rennes and, soon,

Shanghai can call or log on to Web sites for

information about rates, opening hours,

service connections, billing and opening

an account. They can also request mainte-

nance or emergency repairs or order a

> ChinaDesign and operation for a period of eight years in Guangzhou of the Xingfeng household waste landfill site with a capacity of 20 million cubic meters, which will be able to process 5,000 metric tons of waste per day during 2003. This site, which conforms to the latest international standards, will provide a showcase for VE in Asia.

Shanghai: 50-year contract to manage water services for Pudong, the city’s new business district (1.9 million inhabitants).

Contracts to manage water service for Baoji (500,000 inhabitants) and wastewater service for Zhuhai (1.2 million inhabitants).

> MalaysiaOutsourcing services contract for 20 years to manage water services at the Kertith petrochemicals complex for Petronas, Malaysia’s No. 1 oil group.

> SingaporeStreet cleaning contract won for downtown Singapore, complementing the waste collection agreement signed in 2001.

> MalaysiaContract to illuminate the Petronas twin towers in Malaysia, the world’s tallest occupied buildings (452 meters high) won by Dalkia subsidiary Citelum, which specializes in public lighting and building illumination systems.

> AustraliaContract won by Onyx for integrated industrial waste management for the 670 sites across Australia belonging to Boral Limited, a building and construction materials supplier.

> EgyptAlexandria waste management contract (3.5 million inhabitants), which started up in October 2001, reached full speed. It covers the collection and processing of 2,500 metric tons of household waste per day, making previous dumps safe, the construction of a landfill site and transfer station, and street cleaning services.

> MoroccoContract to supply municipal waste, wastewater and electricity services for Rabat/Salé and the surrounding region for 26 years (population of 2 million).

> Czech Republic Dalkia won the tender launched by the city of Ostrava leading to the acquisition of ZTO, which supplies the city’s heating services. With its 315 boiler plants, 160 kilometer network and 233 substations, ZTO supplies heat to 84,000 residential units and 900,000 square meters of commercial space.

> Czech RepublicPrague: 13-year contract won in 2001 to operate water services for Prague and the surrounding area (population of 1.2 million) extended to 28 years.

> Sweden Contract to operate the metro and three tram lines in Stockholm extended for five years. Three other tenders were won in Sweden during 2002.

Acquisition of five companies from the Maintech group specializing in industrial maintenance.

> Benelux Technical maintenance contract won by Dalkia for the European Commission’s entire real estate portfolio (68 buildings).

> The NetherlandsAcquisition of DBU, a company specializing in technical services and the supply of mechanical and electro-technical systems for industry.

Design, construction and operation of wastewater plants for The Hague Hague and surrounding region for a period of 30 years.

> GermanyOpening in December of the Lausitzbahn rail network in the Görlitz region. Connex now operates two long-distance inter-regional rail links between the south of eastern Germany, Berlin and the Baltic Sea.

> SloveniaAcquisition of Maribor’s urban and regional network (250 motorcoaches and buses).


Dalkia partners with Agenda 21in Lille

In 2002, Dalkia opened the cogeneration plant servingRésonor, Lille’s district heating network, which Dalkia hasbeen operating for 20 years. The plant runs on a 45 MW gasturbine and simultaneously produces electricity, whichgoes to the EDF network, and heat, which is used by thecity’s heating network. Dalkia committed to reducing sulfurdioxide emissions by 75%, reducing rates for users by 15%and incorporating the facility into its urban environmentarchitecturally and through landscaping.

E N E R G Y S E R V I C E S


>

Connex, the expert in public transportation management

In Europe, Connex operatestram and light rail systemsin Görlitz and Berlin,Germany;Stockholm,Sweden;and Rouenand St. Étienne, France.It will be operating the plannedBordeaux tramway in Franceand partnering in Spain with FCC to operate Barcelona’s metro.In the United States, it signed a contract at the beginning of2003 to operate the Boston commuter rail network.


With over 100 years

of experience in

partnerships with

municipalities,

VE has acquired an

expertise in outsourced

management that

today goes well beyond

France’s borders.

“

”

personalized service, such as waste pick-up

or transportation on demand.

VE does all it can to enable its municipal

customers to develop close ties with users

of the public services it operates.

Well-established leadership in outsourcing With over 100 years of experience in part-

nerships with municipalities, VE has

acquired an expertise in outsourced man-

agement that today goes well beyond

France’s borders. This type of partnership

provides an efficient and reassuring frame-

work for the operation of public services

such as water distribution, transportation,

wastewater services and waste processing

and elimination.

VE’s international expansion combined

with its wide range of complementary serv-

ices have allowed it to develop a variety of

suitable contract models. Thus the compa-

ny now has the competencies required to

deal with all types of need. Of variable dura-

tion, the contracts must take into account

complex legal constraints and different

national regulations and contexts. VE can

also organize financing for infrastructure

and seek out appropriate investors and

lenders.

VE is at the forefront of a new trend toward

offering municipalities around the world

customized, integrated environmental

management services.

In 2002, VE signed public-private partner-

ships with Stockholm, Sweden; The Hague,

Netherlands; Vilnius, Lithuania; Indianapolis,

United States; Alexandria, Egypt; Tetouan

and Rabat, Morocco; and Shanghai, Baoji,

Zhuhai and Guangzhou,China.The contracts

represent good quality, efficient public serv-

ices, along with cooperation between the

public authority and private operator.

> Ireland Contract to operate Dublin's new Luas light rail network, which will enter service in late 2003.

> United KingdomDalkia was the only energy services company selected to participate in the first-ever CO2 Emissions Trading Scheme auction set up by the UK authorities.

> United Kingdom Waste collection and street cleaning contract for the City of Westminster in London (200,000 inhabitants and 1 million visitors per day) renewed for seven years. Waste collection and treatment and street cleaning contract with the district of Camden. Waste collection and recycling contract for the city of Portsmouth (population of 190,000).

• Contract for 15 years to treatindustrial effluents at the Florange site in the Moselle region awarded by Arcelor Packaging, (steel industry).

• Contract to manageindustrial effluents produced by Smurfit Cellulose du Pin subsidiary for 12 years.

Water

Waste management

Energy services

Transportation

Contract to manage water and wastewater services at the Big Springs refinery in Alon, Texas, for 20 years.

> United StatesIndianapolis: 20-year contract to manage the water service for the city’s 1.1 million inhabitants.

> FranceAcquisition of Transports Verney, which operates in over 30 departments of France and rounds out Connex’s existing road-based passenger transportation services in France.

• District heating networkconcession at Mons-en-Barœul, renewed for 25 years, with the installation of a 7 MW cogeneration plant.

> ItalyContract signed to supply electricity, heat and cooling services to Manulifilm, one of the leading European manufacturers of packaging film.

> ChileMaipu landfill site serving the Santiago metropolitan area brought into service by Proactiva. The site, which is designed to handle 700,000 metric tons of waste per year for 23 years, is a showcase for VE’s technology.

• Thermal servicesmanagement contract renewed by OPAC Paris.

• New facilitiesmanagement contract awarded by the Crédit Mutuel du Nord bank covering the 220 branches of its North-Europe network.

• Upgrade of the Achèreswastewater treatment plant, which handles a large proportion of the wastewater in the Paris region.

MAIN EVENTS OF 2002

25 VE - 2002 Annual Report

34

INDUSTRIAL AND TERTIARY CUSTOMERS: WORLD LEADERSHIP POSITION

Our goal is to be a partner in our industrial customers’ growth,

offer them innovative outsourcing solutions and build

long-term, renewable and environmentally sound partnerships

with them.

CUSTOMERS >

US Filter - Conoco facility at Lake Charles, Louisiana


23

For investors and financial analysts,

an Investor Relations team is available

to answer your questions in either French

or English:

Nathalie Pinon

Director of Investor Relations

Veolia Environnement

36-38, avenue Kléber - 75116 Paris

Tel. (France): +33 1 71 75 01 67

Fax: +33 1 71 75 10 12


Contact in USA: Brian Sullivan

Tel.: +1 401 737 41 00


Those interested may also contact

the Shareholders’ Department by:

calling 0 805 800 000which is toll-free when called from a

fixed-line telephone in France

E-mail: service [email protected]

Writing to: Veolia Environnement’s

Shareholders’ Department,

36-38 avenue Kléber, 75116 Paris

Publications for shareholdersEach year VE publishes several documents

for its shareholders, including:

- an annual report;

- the document de référence approved by

the COB (in French);

- a Form 20-F annual report complying

with SEC standards (in English);

- newsletters for shareholders, produced

twice a year;

- a sustainable development report;

- and a guide for individual shareholders,

published for the first time in 2002.

These documents are available upon

request and most of them can also be

downloaded from the company’s Web site.

VE regularly publishes financial notices in

the business and financial press to inform

shareholders about its latest earnings

trends, as well as significant developments

affecting the company.

A new Web site for individualshareholdersVE’s Web sites feature the latest news

about the company, its business activities

and financial results.

www.veoliaenvironnement.com presents

general information about the company,

while

www.veoliaenvironnement-finance.com

is dedicated to financial information.

A special area for individual shareholders

was added to VE’s general Web site in

October 2002. Click on “Shareholders” to

Contacts for investors:>

>

Key dates in 2003 for shareholders’diaries• Shareholders’ newsletter: April.• Annual Shareholders Meeting:

April 30, Carrousel du Louvre, Paris.• First-quarter revenue statement:

first week of May.• Payment of the dividend:

early May.• First-half revenue statement:

early August.• First-half financial statements:

late September.

• Shareholders’ newsletter: October.• Nine-month revenue statement:

early November.

access this section through the corporate

site, or enter

www.actionnaires.veoliaenvironnement.com

to access it directly.

This new section contains all the infor-

mation likely to interest individual

shareholders, including share price data,

transactions with an impact on the capital

stock and news of significant developments

affecting the company. They may also

download the annual report, the 20-F

report and the sustainable development

report published by the company. The

Web site is updated on

a regular basis.

An e-mail alert service

informing subscribers

directly of VE’s main press

releases is also available.


of which:

WaterWaste management Energy servicesFCC

0.30.2

n.m.n.m.

South America


of which:

1.81.40.10.1

North America

WaterWaste managementTransportationFCC

VE’S WORLDWIDE PRESENCE


AN INTERNATIONAL COMPANY>

In 2002, 57% of VE’s consolidated

revenue was derived from outside

France.

Deploying the company’s know-how

BP again expressed its confi-dence in VE by selecting Dalkia toprovide comprehensive manage-ment of the thermo-electricplant at its Lavéra refinery in apartnership with Air Liquide.Thisis in addition to VE’s other workat the facility, with Connex han-dling all of the rail services since 1987 and V. Water in charge ofoperating the water treatment units.

> B P L A V É R A

A partnership for15 industrial sites

In 2002, Renault renewed its contract with VE for compre-hensive waste management at 15 of its plants. The solutionset up in 1997 by Onyx is based on a continuous improve-ment approach to reducing waste production at the sourceand encouraging experience sharing between the sites. Onyxemploys over 300 people at 15 Renault facilities and coordi-nates 150 subcontracting firms.The four-year renewal provides for additional services withother VE divisions and deployment at new plants outside ofFrance.

R E N A U LT>

One goal: to be partners in ourindustrial customers’ growthAll industrial companies, regardless of

their sector, are faced with major strate-

gic challenges. They must constantly

improve their economic performance,

focus their resources on their core busi-

ness, guarantee the safety of their staff

and facilities, and reduce the environ-

mental impacts of their activities.

VE wants to help industrial companies

meet those challenges by offering them a

variety of solutions that cover the entire

range of environmental services.

In the buoyant emerging market for out-

sourcing services, for example, VE puts three

key capacities at their disposal:

• the capacity to cover all of the utilities

required in the industrial process, includ-

ing steam; industrial heat and cooling;

ultra-pure, demineralized and other

types of water; and compressed air;

•the capacity to manage the environ-

mental impact of plant activities,

including waste and liquid and gaseous

discharges;

•the capacity to serve an industrial

company worldwide because of its

presence on all continents and in nearly

100 countries.

Committing for the long termVE enters into a genuine partnership for

the long term with its industrial customers

so that it can offer them innovative solu-

tions that are adapted to the needs of each

of their facilities. In addition, industrial cus-

tomers benefit from the technological and

human resources expertise that VE has

built up over the years:

•successful personnel integration is guar-

anteed by a tried and proven method

developed several years ago that makes

the human element central in outsourc-

ing programs. This is in addition to major

ongoing investment in training for

employees rehired by VE in order to

enhance their skills;


CUSTOMERS

35%

10.5

Industrial and tertiary markets

approximately

consolidated revenue in 2002

billion from industrial and tertiary markets, up 15% over 2001

>


CUSTOMERS

A new offering for hospitals

Stérience, a 59-41% partnership between VE and the Germangroup B. Braun, is embarking on the new business of outsourcedsterilization of reusable medical instruments for hospitals, as

well as setting up a trace-ability system.Contracts have been signedwith 15 public and privatehealth-care facilities, includingHospices Civils in Lyons andthe Annecy hospital.

The outsourcing approach spreads

As part of its outsourcing strategy, Arcelor again selected VE in2002 for a large number of outsourcing contracts involving allfour divisions. For example, VE took over operation of all of theenergy production, water treatment and waste managementfacilities at Arcelor’s Montataire facility under a seven-yearcontract.V. Water and Dalkia signed outsourcing contracts for water andsteam production at the Florange site. And Connex wasawarded a contract to manage rail transportation for the firm’sEko Stahl subsidiary in Germany.

A R C E L O R > S T É R I E N C E>

•the company’s 600 researchers concen-

trate on the particular technological

problems of industrial customers. This

expertise is an important source of pro-

ductivity gains and equips customers to

anticipate changes in regulations.

Last but not least, VE puts into place con-

siderable resources to guarantee its

customers’ compliance with high stan-

dards of health, safety and environmental

protection in the areas it manages.

Its multi-services offering is rooted in

the expertise of each division and sub-

sidiary. It is also based on VE’s capacity

to bring together its different types of

expertise in customized, integrated

packages, which are one of the compa-

ny’s hallmarks.

Outsourcing advances in 2002The year brought significant growth in

VE’s industrial outsourcing services.

While economic conditions were general-

ly less favorable in industrial markets, the

company found a source of growth in out-

sourcing contracts. Although volume in

industrial business was flat, industrial

customers outsourced activities previous-

ly handled internally, placing VE in a

high-potential market.

Growth here was, however, achieved by

careful selection of projects and cus-

tomers so as to maintain margins.

Industrial customers also continued to

show interest in integrated multi-service

solutions covering a wide range of environ-

mental services. In this field,VE can draw on

the complementary know-how of its four

divisions, which gives it a distinct competi-

tive edge.

>

Build customized

solutions based on the

specific needs of each

industrial site.

“

”

CUSTOMERS


An example of commercial cooperation

Through close cooperation with one of the pharmaceuticalgiants, Onyx signed an important agreement in 2002 onwaste management for most of the drug firm’s sites. Thelong-standing relationship between US Filter and thispharmaceutical group was a determining factor in thecontract award. VE’s water and waste management divisionsare coordinating their commercial management of major USindustrial accounts in a program called “Operation Synergy.”

Worldwide partnership signed

In 2002, VE signed a worldwide partnership agreement withthe Accor group that promises to reinforce its position ofpreferred supplier for a wide range of services to Accorhotels: heating, air conditioning, selective waste collectionand removal, the management and maintenance of watersystems, and employee and customer transportation.Experimental applications for better environmentalprotection are being studied at new sites. These include seawater desalination and the use of renewable energy andclean fuels.

A C C O R > OPERATION SYNERGY>

New prospects in the tertiarysectorNew needs in the tertiary sector emerged in

2002, translating into major inroads for VE

in such varied segments as the hospital, air-

port, hotel and transportation sectors.

These customers expect a wide diversity of

services that call on the company’s entire

range of expertise, including the provision

of water, heating, air conditioning, waste

management, passenger transportation,

services for residents, etc.

The possession of all of these competen-

cies and the capacity to combine them,

sometimes with those of external partners,

forms the cornerstone of VE’s offering in

the tertiary sector. The partnership con-

tracts and agreements signed with major

tertiary customers often involve a large

number of medium-sized, geographically

dispersed sites. VE has the major advan-

tage of its dense network of locations in

This wide-ranging expertise enables the

company’s customers to benefit from its

technical synergies and gain better control

of their economic performance and envi-

ronmental risks. The technical synergies

are evident, for example, in the waste-to-

energy field, the treatment of industrial

effluents and associated sludge, and the

provision of demineralized water for indus-

trial boilers.

New contracts with its main industrial cus-

tomers were a source of growth for the

company in 2002, in particular through

expanding the scope of existing services to

multi-service solutions and extending its

activities to plants in other countries.

These agreements take the form of long-

term partnerships, as for example, with

Renault, Arcelor and Accor. Under these

partnerships,VE helps its customers expand

internationally by participating in the con-

struction of their new facilities abroad.

France and abroad, ensuring local service

over an extended area.

Another important advantage for the ter-

tiary sector is the major progress the

company made in 2002 in structuring its

services in the management of bacterio-

logical risk in water consistent with

new regulations.

>

2002 Annual Report - VE

VE’s researchers have a mission: to anticipate the needs of the future and

provide effective solutions. They work to maintain the company’s

technological edge and adapt its water, energy, waste management and

transportation services to the reality of a changing world. Aware of their

responsibility, they adopt an approach that favors sustainable

development.

38

>

RESEARCH AND INNOVATION:A CONSTANT PRIORITY

RESEARCH AND INNOVATION


The research and innovation that maintains

VE’s technological edge has three goals: to

design new processes to meet the needs of

industrial, municipal and residential cus-

tomers; to contribute to the company’s

overall performance; and to satisfy environ-

mental and public health requirements.

VE’s uniqueness lies in its ability to enhance

the scientific approach with observations

on actual operations in the field.

Innovation, the performanceguaranteeBy supporting and keeping one step ahead

of customer needs, R&D guarantees the

future performance of the company. Some

600 researchers in several research centers

around the globe work alongside and in

support of operators in their daily activities.

The dissemination of innovation through-

out the company and its numerous

locations worldwide ensures true transfer

of know-how.

Anticipating customer needs has been the

source of many research programs. Examples

include continuous electrodeionization,

which aims to provide a constant supply of

ultrapure water for pharmaceutical and

electronic industries; the catenary-free tram,

which enables the transportation system to

blend harmoniously into the architecture of

urban centers; fuel cells; and methane

production from waste.

Making improvements in a company’s

business performance calls for more than

efficiency. It also requires increasing

productivity and cost savings. New tools

can be designed for this purpose by VE’s

teams.

Onboard equipment,using new information

and communication technologies (NITC) in

transportation, service and waste collection

vehicles help operators optimize their routes

and schedules, better plan their tasks, and

Innovation in the field of incineration and stack gas treatment

Nitrogen oxides (NOx) are generatedduring combustion at very high tem-peratures and contribute to theformation of acid rain and smog. NOxemissions from waste incinerators aresubject to increasingly stringent regu-lations. The technology developed byVE researchers to reduce NOx allowsoperators to comply with the new

European standard without using a chemical reagent. Itsimplementation has been optimized by using computationalfluid dynamics (CFD), an area in which VE is among the fore-runners.

I N N O V A T I O N>

Optimization of energy efficiency

Energy efficiency can be opti-mized by storing energyintermittently in the form ofelectricity and heat, comple-menting the cogenerationoffering.

O P T I M I Z A T I O N>

600

3

A powerful R&D network

researchers Europe, United States, Australia

main researchcenters

For Water:Anjou Recherche,with associated units inthe United States,Canada,Germanyand Australia

For Energy Services and Waste Management: CREED(Center for Environment, Energy and Waste Research),with branches in Northern Europe and Australia

For Transportation:Eurolum.

>RESEARCH AND INNOVATION

39

>

40

provide more efficient emergency and other

services to customers.

Work such as the membrane research

program also leads to improved technical

and business performance, as does that

on the gradual replacement of landfills by

bioreactors in which the production–and

therefore recycling–of energy generated

by the decomposition of waste is con-

trolled and optimized.

Long-term performanceimprovementsThe work of VE’s researchers is part and

parcel of the company’s sustainable

development goals, whether in terms of

protecting resources, health, safety or

social responsibility. R&D is not restricted

to preparing the future of the businesses,

it must also anticipate the major prob-

lems to be faced by society.

Through its research programs aimed at

reducing polluting emissions, limiting

greenhouse gas emissions, increasing

energy efficiency and using clean energy,

VE is improving the quality of air, fighting

climate change and positioning itself as a

recognized player in the market for CO2

emission credits.

In the field of health and hygiene safety,

the company provides remedies to new

risks by developing tools and technologies

for prevention, analysis and, if necessary,

curative treatment.

VE’s experts are working on risks such as

Legionella, endocrine disrupters and

cyanobacteria in water, as well as dioxins

and measuring their levels in incineration

plant stack gases.

In addition to its R&D programs, at the

end of 2002, VE decided to strengthen its

position in the field of environmental and

health control by bringing together its

Effluent treatment

VE has broadened its rangefor industry by adapting theBiostyr process, which wasinitially developed to removecarbon and nitrogen pollutionfrom municipal wastewater.The process was extendedin 2002 to the treatment ofeffluent from the BP Lavéraoil refinery.

W A S T E W A T E R>

The communicating vehicle:fast and efficient

To improve operating performances and optimize customerservice, in particular by speeding up responses to emergencies,a number of VE service vehicles have been equipped withonboard information and communication tools for organizingassignments, communications, exchanging information andproducing estimates and other documents without having toreturn to base every day.The onboard or portable systems weredeveloped by VE’s R&D teams.



RESEARCH AND INNOVATION

Our researchers’ mission

is to anticipate the needs

of the future and provide

efficient solutions.

H . P r o g l i o

“

”


analysis laboratories into an economic

interest grouping, the Environmental

Analysis Center (EAC).

Research strength that reachesout to the worldVE’s R&D draws on the complementary

nature of the company’s divisions to devel-

op complex products and services such as

comprehensive wastewater management

and the treatment of waste containing

hydrocarbons. It is also enhanced by many

partnerships with industry, municipalities,

government organizations, universities

and so on.

In 2002, through its research teams, VE

joined other institutions to create the Global

Water Research Coalition (GWRC), which

aims to encourage R&D collaboration.

VE and EDF have formed a joint panel of

experts to implement increasingly inno-

vative solutions in the field of energy.

Through the EAC,VE is participating in the

work of the Metropolis network, which is

supported by the European Commission

and aims to identify, assess and then pro-

mote environmental analysis techniques

and methodologies.

Through their participation in European

R&D programs such as LIFE and the

Framework Programs for Research and

Technological Development, and national

programs such as France’s PREDIT, VE’s

researchers play an active role in interna-

tional research. The network of productive

relationships established with a very

extensive range of industrial and universi-

ty partners leads to developments on the

ground that further contribute to the

broadening of VE’s products and services.

New leads for farmland maintenance

With the goal of characterizing the agricultural value ofcompost and controlling its impact on the environment, VEis carrying out a 10-year program in partnership with INRA,France’s national agricultural research institution, toimprove compost.Several types of compost are currently being studied in thelaboratory and in the field.VE’s researchers have been working on the depletion ofhumus in the soil for many years.

A G R I C U LT U R E>

VE works in partnership

with experts from around

the world to benefit

from the latest scientific

findings and contribute

to world research on

environment-related

issues.

“

”

Rapid detection of Legionella

With the existing standardmethod for detecting Legionella,the results are only availableafter 10-15 days. VE’s researchersare developing two faster methodsusing molecular biology.

W A T E R>

>RESEARCH AND INNOVATION

ACTIVITIES

KEY FIGURES

PRIORITIES


ENVIRONMENTAL SERVICES

ONE CORE BUSINESS: SERVING TH WATER WASTE MANAGEMENT

• Design, manufacture and supply of watertreatment equipment, systems andfacilities.

• Municipal outsourcing services in waterand wastewater.

• Industrial outsourcing services in water(process water and wastewater).

• End-user services

• Collection, transfer, treatment andrecycling of solid, liquid and hazardouswaste for municipalities and industrialcompanies.

• Waste recycling into energy and foragricultural applications, in addition torecycling of materials.

• Street cleaning and gully cleaning.• Industrial waste management services.

• No. 1 worldwide in water services.• 313.3 billion in revenue in 2002.• 110 million people served.• More than 40,000 industrial customers.• 77,600 employees.(1)• Operations in nearly 100 countries.

• No. 2 worldwide in waste managementand a world leader in hazardousindustrial waste management.

• 36.1 billion in revenue in 2002.• Over 76 million people served.• 270,000 industrial and tertiary sector

customers.• 73,300 employees. (1)• Operations in 49 countries.

• Strengthen position as preferred partnerfor municipal water and wastewateroutsourcing services in Europe, anddevelop market positions in Asia and theUnited States.

• Consolidate world leadership position inindustrial outsourcing services and thesupply of industrial water treatmentsystems.

• Continue substantial research workconcentrating on sustainabledevelopment.

• Develop new end-user services.

• Expand waste treatment capacities.• Strengthen offering to industrial customers

through comprehensive expertise in wastetreatment processes and synergies withVE’s other divisions.

• Consolidate the international network.• Increase the businesses’ efficiency by

incorporating changes in cost structure.• Increase technological leadership in waste

treatment and recycling.

>

(1) The number of employees refers to the totalmanaged at December 31, 2002, including allFCC employees.

• 32.7 billion in revenue in 2002*.

• 55,800 employees.(1)

No. 1 in waste managementin Spain

• 43 million people served in 1,500 municipalities.

• 550,000 metric tons a year of industrial waste treated.

No. 2 in water managementin Spain

• Water service for 7.2 millionpeople.

• Wastewater service for 9 million people.

Construction • Civil engineering,

infrastructure and residentialconstruction.

• Cement and public works.

* VE shareVE owns 49% of B 1998 SL, themajority shareholder of Fomento de Construcciones y Contratas (FCC) in Spain.


ENVIRONMENTAL SERVICES

E ENVIRONMENTENERGY SERVICES TRANSPORTATION FCC FOMENTO DE CONSTRUCCIONES

Y CONTRATAS

• Outsourced management of urban,regional and national passengertransportation in all types of vehicle: localand long-distance bus, train, metro, tram,trolley bus, boat, taxi etc.

• Freight transportation and logistics.

• No. 1 private operator of surface passengertransportation in Europe.

• 33.4 billion in revenue in 2002.• Operation of 236 road and rail networks.• More than 4,000 municipal customers.• 55,200 employees.• Operations in 22 countries.

• Increase passenger numbers byimproving the services provided:customer reception, vehicle comfort, user-friendliness of transit areas, etc.

• Improve network profitability bycontrolling operating costs.

• Invent the transportation systems of thefuture and further the development ofthe areas served and the mobility of thepeople who live there.

• Enable all employees to show theirdedication in their day-to-day workthrough a policy of decentralization,training and incentives to take initiative.

• Heating and cooling networks.• Thermal and technical maintenance

services.• Industrial utilities.• Integrated facilities management

services.• Installation of HVAC and electrical

equipment, and industrial maintenance.• Public lighting and illumination systems.

• No. 1 in Europe in energy services.• 34.6 billion in revenue in 2002.• 300 district heating networks.• 70,000 systems managed.• 40,100 employees.(1)• Operations in 32 countries.

• Expand the offering in deregulatedmarkets.

• Enhance and expand the offering forindustrial companies.

• Deploy key activities (heating networks,industrial services and facilitiesmanagement) outside France.

>

Chinahas become a strategic area for growthfor VE. As in other targeted countries in Asia, the company has positioned itselffor the future, not only for its Water business but also for its otherenvironmental services.

A historicpartnershipagreementin ShanghaiV. Water won the international tender to manage the Pudong drinking waterservice for 50 years. Pudong is thebusiness district of Shanghai, China’sbiggest city. A public-private partnershipof this size with a foreign company is ahistoric first in China.

44

Water division operations around the world

Water division


France

Rest of Europe

Americas

Rest of the world

47%

17%

28%

8%

Breakdown of 2002 revenue by customer type

Municipal

Industrial and tertiary

Residential

62%

33%

5%

2002 revenue

billion€13.3

2002 workforce

77,600(total number of employees managed at December 31, 2002)

WATER(in millions of euros)

RevenueEBIT* Includes 100% of the earnings in the Water segment of Proactiva, the company jointly owned by FCC and VE

2002*

13,294

1,024

2001/2002 change-2.5%

-6.1%

2001*

13,641

1,090

Veolia Water is the world leader in water services. In additionto specializing in the outsourced management of waterservices for municipalities and industrial and tertiarycompanies, it is one of the leading designers and suppliersworldwide of water treatment equipment, systems andfacilities.

Comprehensive expertise inwater cycle managementWorld leader in its markets, the Water

division operates in three segments:

municipal, industrial and tertiary, and

residential. Its range covers the entire

water cycle:

• Municipal outsourcing services in water

and wastewater;

• Management of industrial water (process

water and wastewater);

• Design,manufacture and supply of water

treatment equipment,systems and

facilities;

• Services for residential customers.

The water market worldwide is

undergoing strong growth, driven by

accelerated urban development and

the decision of an increasing number

of municipalities and industrial

customers to outsource the

management of their water services

to specialists with the necessary

expertise and ability to propose an

integrated solution tailored to their

specific needs. Drawing on its

strengths –150 years of experience,

innovative research, recognized

know-how and a network spanning

the globe– V. Water is able to

reinforce its long-standing

leadership position in this market

year on year.

Further commercial successesin 2002After the very good year in 2001 in terms

of new contracts, and taking into consid-

eration the more difficult economic

conditions worldwide in 2002, the new

commercial successes recorded by V.Water

during the year bore witness to its

competitive strength and dynamism.

In regard to revenue, the favorable trend

was partially masked by the divestment,

in line with objectives, of non-core water


The membrane processes currentlybeing developed through V. Waterresearch represent a realtechnological breakthroughcompared with the treatment ofwater by filtration, using activatedcarbon, ozone and chlorine, which isused at present for the productionof most drinking water worldwide.

The new membrane technologiesprovide the solutions to the verystringent demands in terms ofhuman health and theenvironment.The numerous applications includewater treatment, municipalwastewater and industrial effluenttreatment, and sea waterdesalination.

Module of hollow fibers

Air to clean the hollow fibers

Permeate or treated water

Water containing particles

Memcor submerged membrane filtration modules in backwash phase

businesses. These principally involved a

number of divisions of US Filter, which con-

tinued its refocusing strategy. US Filter now

has a structure that puts more emphasis on

its core business, namely management of

services and equipment supply.

Record-breaking contracts in municipal outsourcingIn France, the year was positive: in a highly

competitive environment,V.Water confirmed

its competitiveness by renewing most of the

outsourcing service contracts that reached

the end of their term and won 43 new

contracts, of which two-thirds were for

wastewater services. Annual revenue for the

Water business increased 3% over the

previous year, representing a good perfor-

mance.

From its already extensive presence in the

rest of Europe, V. Water strengthened its

leadership position by signing several major

contracts. These included the design, con-

struction and 30-year operation of waste-

water treatment plants for The Hague and

surrounding area (Netherlands), and the

extension from 13 to 28 years of the con-

tract won last year in Prague (Czech

Republic), with V. Water taking full control

of the Prague water company.

In the United States, several contracts were

won, including Indianapolis (see box),

Atlanta (management of wastewater sludge

treatment) and Richmond (a 20-year waste-

water treatment contract).

Asia,where VE already has operations, in par-

ticular in China, South Korea and Malaysia,

has become a strategic area for growth. In

China, the 50-year contract to manage the

water service of the business district of

Shanghai, China’s biggest city, was won in

May, followed by outsourced management

contracts in Baoji (water service) and Zhuhai

(wastewater service) in December.

In North Africa, V. Water took over the out-

sourced management of the water, waste-

water and electricity services of Rabat-Salé,

with a population of 2 million, for 26 years.

Further growth in industrialcontracts In France, new wastewater treatment con-

tracts were signed for several industrial

sites: Smurfit (pulp and paper), Rhodia

(fine chemistry), Arcelor Packaging (steel

manufacture), as well as effluent treat-

ment for several food and beverage

companies (Lu, Laurent-Perrier, Saupiquet,

Stalaven and others).


WATER

Ramadan City 10 drinking water production plant in Egypt builtby V. Water Systems near Cairo in 2002

Water is part of public health issuesbecause it is a food and beverageproduct.

>>

Membranes: atechnological breakthroughin water treatment

Technology>

>


In the United States, US Filter won a 20-

year outsourcing services contract covering

water and wastewater at the Alon refinery

in Texas.

Lastly, in Malaysia, V. Water was awarded

the contract for water management at

the Kertith petrochemicals complex for

20 years.

Engineering, equipment andsystems: a unique approachOpportunities for V. Water’s design-build

activities, and equipment and systems arise

where markets have opened up and also in

support of operators already in place.

In 2002, the revenue from this segment

declined due to economic conditions and

the drive to focus on core business. Several

major contracts were, however, won. The

most significant in France was that for the

Achères-Seine Aval plant, which treats a

high proportion of the wastewater gener-

ated in the greater Paris area. Outside

France, V. Water will participate in the

design and construction of facilities

planned as part of the management con-

tracts in The Hague (Netherlands), Baoji and

Zhuhai (China), as well as Ashkelon (Israel),

where the initial capacity of the sea water

desalination plant currently under con-

struction is to be doubled. US Filter in the

United States continued to win numerous

equipment contracts with municipalities

and industrial customers, such as the one

in Orange County, California, where the

company is installing the world’s biggest

microfiltration plant, which will treat waste-

water for aquifer recharge.

Expansion in the residentialsegmentThe production and sale of bottled water

under the Culligan brand continues to

expand in the United States and Europe.

New and interesting services for residential

customers are being implemented.

OutlookMajor new contracts signed during the past

two years by the Water division will ramp

up in 2003. Growth will be pursued through

carefully selected contracts with good mar-

gins, focusing in particular on Europe, the

United States and Asia.

WATER

At Ashkelon, Israel, desalination provides a new, alternative water resource in unlimited quantities

> Indianapolis, US, has a population of 1.1 million. The city has awarded US Filter a 20-year contract to manage its drinking water services within the framework of a public-private partnership

> V. Water won its firstwastewater contract insouthern China, for thecoastal city of Zhuhai

> In Prague, the contract to managethe city’s water cycle has beenextended from 13 to 28 years

>

Geographicalbreakthrough

Indianapolis: the largestpublic-privatepartnership in thewater sector in theUnited States

US Filter has been selectedby Indianapolis, the 12thlargest water system in theUnited States, to manage itswater services within theframework of a 20-yearpublic-private partnership.Under the terms of the $1.5 billion contract, V. Wateris responsible for theoperation, maintenance andcustomer service of the city’swater service, which includesfour treatment plants withina 40 kilometer radius of Indianapolis and serves 1.1 million people.

>

48

KeepingWestminster…Onyx’s contract to clean the streets andcollect waste in the City of Westminsterhas been renewed. For this famous areaof London, with its 200,000 inhabitantsand 1 million visitors per day, Onyx came up with tailor-made, non-stopservices employing the most modernvehicles, with GPS, on-board weighingsystems and two-compartment trucks,for glass and paper and paperboard.

…and Parisbeautiful and cleanIn response to higher recycling targetsset by European governments,Onyx partners with municipalities to put together the resources forexpanding selective waste collection andrecycling and to promote integratedsolutions.


2002 revenue

€ 6.1 2002 workforce

73,300France

Rest of Europe

Americas

Rest of the world

42%

24%

27%

7%

Breakdown of 2002revenue by customer type

Municipal

Industrial and tertiary

36%

64%

billion

Waste Management division operations around the world

Waste Management division

total number of employees managed at December 31, 2002)

WASTE MANAGEMENT

Onyx, the world’s 2nd largest waste management companyand one of the leaders in Europe, operates in all aspects ofsolid, liquid and hazardous waste management formunicipalities and industrial companies. Onyx providescomprehensive waste management, from collection,sorting, transferring and processing up to and includingmaterials recovery, recycling, conversion to electricalpower and heat, and compost production.

The preeminent specialistin multiservices worldwideOnxy has a presence on every continent

and in recent years has extended its range

of services, adapting them to the market’s

specific needs, in particular for outsourcing

services.

The company operates in the traditional

waste management activities of collection,

processing and recycling, but also provides

complementary services,such as commercial

cleaning, street and gully cleaning, and

specific technologies for cleaning up polluted

sites.

This specialization enables Onyx to dispose

of technologically effective solutions for

all situations, whether managing public

services for municipalities or developing

customized solutions for the specific

problems of industrial companies, from

major companies to small and medium-

sized industries and firms.

Its capacity to operate everywhere in the

world and adapt its offering to local

conditions and problems has made Onyx

one of the biggest and most technologically

advanced operators in the treatment of

hazardous industrial waste.

The scope and quality of Onyx’s know-how in

all of these fields have given it a competitive

advantage, which was confirmed again in

2002.

2002: a year of overallconsolidation A year of consolidation and reorganization,

2002 benefited from the organic growth

generated by the contracts signed the pre-

vious year.

The company attracted new industrial

customers, such as Pfizer in the United

Kingdom and Ford and ChevronPhilips

Chemical in the United States. However, the

biggest new contracts came from major

public-private partnerships.


(in millions of euros)

RevenueEBIT* Including 100% of the earnings in the Waste Management segment of Proactiva, the company jointly owned by FCC and VE.

2002*6,139

385

2001/2002 change+3.8%-1.4%

2001*5,914

391

Injection well andleachate collection pipes

Leak-proof bottom and walls

(geomembrane)

Gas extractorLeak-proof

The bioreactor

New municipal contractsall over the world

In France, the businesses continued to

grow despite more restrictive legislation.

In addition, the reduction of the workweek

to 35 hours required costly reorganization.

Onyx won a three-year contract in Paris

to clean the Champs-Élysées and the

Beaubourg and Notre-Dame plazas. The

capital’s municipality also renewed its con-

tract with Onyx for household waste

collection and treatment. Onyx’s industrial

portfolio expanded in the chemical, pharma-

ceutical, automotive and retail industries.

One of the priorities of 2003 will be to fur-

ther improve operating margins.

In the rest of Europe, substantial strides

were made in the United Kingdom.

The British subsidiary continued to recover

and its signing of three seven-year con-

tracts in less than six months underlines its

know-how in developing integrated solu-

tions. The contracts cover waste collection

and recycling for the city of Portsmouth and

street cleaning for London’s historic

Westminster borough and for Camden

Council.

In North America, the world’s biggest

market, where close to one-quarter of Onyx’s

A solution for the future:the “bioreactor”

revenue is generated, growth came from

municipal solid waste contracts and good

performance in hazardous waste mana-

gement.

Onyx North America won the outsourcing

contract for two waste-to-energy plants: for

six years in Savannah, Georgia and seven

years in Charleston, South Carolina. It was

also awarded a contract to collect and

recycle municipal waste in Highland Park

and Saint Charles, Illinois.

In Asia, hopes for the new Asian markets

were fulfilled in 2002. In Singapore, which

has some of the world’s strictest environ-

mental standards, Onyx added to the waste

collection contract it had signed in 2001 by

winning a street cleaning contract for the

downtown area.

In China, Onyx won a major contract to

design and operate the Guangzhou house-

hold waste landfill, the first contract of this

type ever awarded in China to a foreign-

owned company. The site will be designed

to meet the highest international stan-

dards and serve as an Asian showcase for

the company’s expertise.

In the rest of the world, a number of

contracts came into effect and new ones

50

WASTE MANAGEMENT

In 2002, Onyx treated 33 million metric tons of non-hazardous solid waste at 139 landfills.

> Its 220 sorting centers received approximately 7 million metric tons of solid waste in 2002 and recycled 4.6 million tons, including 1 million tonsof paper.

>

The bioreactor concept is basedon accelerating decomposition inorder to stabilize landfill wastemore quickly. The technology,which was developed in France, the United States andAustralia, involves recirculatingthe leachate under controlledconditions in order to carrynutrients and humidity to the bacteria contained inwaste. The main advantages ofthis new waste treatmentprocess are that it decreasesenvironmental impacts,reduces post-closure costs andproduces more biogas, which can be reused. VE’s research and development teams arestudying these options.

Technology>

>


51

were signed in 2002, such as the waste

management contract with the city of

Rabat-Hassan, Morocco. This six-year con-

tract involves the collection of household

waste and green waste, street and beach

cleaning and the eradication of wild dumps

in the city. Particular attention will be paid to

historic and government sites, and training

is an important component of the contract.

Sustainable developmenta priorityInternational regulations on waste man-

agement are becoming stricter and more

stringent. Onyx takes its responsibility

toward the environment seriously and

views its own continuity and expansion as

contingent on working within an environ-

mentally affirmative system. Its objectives

are to recycle as much of the waste it col-

lects as possible and consequently preserve

natural resources, to diminish the impacts

of its activities on the air, water, soil and

biotopes, and to bring end-of-life industrial

sites into compliance with environmental

standards. Onyx’s solutions not only provide

a satisfactory response for industrial com-

panies and municipalities, but sustainably

improve existing conditions under accept-

able economic conditions, including in

countries with more flexible laws. Onyx’s

technological advance in methods for recy-

cling industrial and household waste, as

reflected in the new Biodiv service launched

in 2002, gives it a definite advantage over

competitors with less structured processes.

Outlook 2003 began with the signing of an agree-

ment on assistance and other forms of

cooperation with the Shanghai municipali-

ty on China’s biggest waste-to-energy

plant. Located in the city center, the Puxi

plant will process and convert 1,500 metric

tons of waste per day by 2004.

This is a first for China. With the experience

Onyx has acquired there over the past few

years, the company has built up the strate-

gic platforms it needs to pursue its growth

in Asia. In addition, in Europe, the company

won a 25-year contract for integrated

household waste management for the city

of Brighton & Hove and East Sussex County,

in the United Kingdom.

WASTE MANAGEMENT

Alexandria, a clean city

Onyx has been managingwaste for Alexandria,Egypt’s second largest city,since October 2001. It collectsand processes the 2,500 metrictons of household waste perday generated by the city’s 3.5 million inhabitants.Onyx is responsible for cleaningup wild dumps, creating alandfill, building a transfercenter and cleaning the city.The contract includesconsiderable employeetraining in waste managementactivities, as well as a campaignto make Alexandrians aware of the issues in keeping theircity clean.The Alexandria contract is a good illustration of theintegrated waste managementVE seeks to provide in order to further sustainabledevelopment in targetedMiddle Eastern countries.

Every day, Onyx keeps many cities clean, includingLondon, Paris, Rabat, Singapore and Chennai.Here in Alexandria, an Onyx employee cleans thestatue of Alexander.

> Onyx maintains the facilities of its industrial and tertiary customers, cleaningoffices and ground and maintainingproduction lines.

> Waste-to-energy plants supply district heatingnetworks.

> Onyx is a specialist in the treatmentof hazardous waste: solvents, resins,sludge with hydrocarbons, batteries,neon tubes and soiled packaging.

>


>VE - 2002 Annual Report

Focus on the BalticDalkia is the leading operator of districtheating networks in Lithuania.It uses local resources, such as wood,optimizes facilities and lowers heating costs in long-term partnershipswith the country’s municipalities.

52

First winter in Vilnius!In the Lithuanian capital, Vilnius,heating is the second biggest item on an average family’s budget, with wintertemperatures dipping as low as -30º C.Dalkia took over operation of the network in 2002 and brought heatingbills down 7% in one year. The company isalso ensuring reliable, continuous service.The “light fairy” atop the museum of electrical power is keeping an eye on things!

* The activities managed outside of France are grouped within Dalkia International, and 75.79% are consolidated in Dalkia’s accounts.

Breakdown of 2002 managed revenue* by geographical area

2002 revenue

billion€ 4.62002 workforce

40,100FranceWestern Europe, excluding France

Central and Eastern Europe and Baltic states

Rest of the world

Breakdown of 2002 managed revenue* by customer type

Municipal

Industrial

Real estate and accommodation

Tertiary

59%28%

12%

1%

28 %

29 %

18%

25 %

Energy Services division operations around the world

Energy Services division

(total number of employees managed at December 31, 2002)

ENERGY SERVICES

Dalkia is the European leader in energy services for companiesand municipalities. Since its creation, its mission has beenenergy and environmental optimization. Its rich range ofcomplementary services enables customers to optimizemanagement of their energy chain, from power generation tosystems operation.

A wide range of customizedservicesDalkia provides energy services to public

and private-sector customers in long-term

partnerships. Its core business is based on

optimized management of all types of

energy. In response to customer expecta-

tions for more comprehensive, integrated

services, Dalkia has gradually developed a

range of activities up and downstream of

energy management: heating and cooling

networks, thermal and technical mainte-

nance services, industrial utilities, installation

of electrical and HVAC systems, industrial

maintenance, integrated facilities manage-

ment services, and public lighting and

illumination.

Its objective is to provide its customers with

solutions that combine energy, economic

and environmental efficiency. In 32 coun-

tries, Dalkia’s offering matches the strength

of a large company with the flexibility of an

organization based on local service that

allows it to come up with solutions adapted

to its customers’ needs. Dalkia offers muni-

cipalities a package of energy services that

relieves them of all activities not directly

related to their normal civic management

responsibilities.

Whether managing district heating and

cooling networks, managing energy

services for all municipal sites or provid-

ing public lighting services, Dalkia

commits itself long-term to improving

the comfort of a municipality’s residents

and users.

The industrial sector currently represents

29% of Dalkia’s business and is high on its

list of growth priorities. In a field where tech-

nical expertise and the capacity to innovate

are key factors in competitiveness, Dalkia’s

technological lead is widely recognized,

especially in the management of services

that are vital to industrial processes and in

system installation and maintenance.



RevenueEBIT

2002

4,571

244

2001/2002 change+13.8%

+10.4%

2001

4,017

221

Emissions

The carbon cycle

AbsorptionPhotosynthesis and oceanic absorption

Fires, respiration, decomposition, production and use of fossil energy

For real estate managers and tertiary

sector firms, Dalkia is a partner capable

of handling all the technical systems and

non-core business services (heating, air

conditioning, ventilation, lighting, cleaning,

janitorial, security, office services, etc.) up to

complete management of these activities

through integrated facilities management

contracts.

More and more synergies with EDF Since the signing of the agreement in

December 2000 between VE and EDF,

the world’s No. 1 electricity company, the

two firms have been developing a joint

approach to eligible customers in France

and certain markets in other countries.

Together, they offer technical services

employing their complementary expertise.

In R&D, for example, Dalkia and EDF pool

their know-how in such fields as microtur-

bines, fuel cells, combustion studies and

emission reductions.

Considerable business growthin 2002 The year was marked by the implementa-

tion of projects concluded the previous year,

for example, the contracts won in the Baltic

Technology> countries, and by the signing of a large

number of new contracts.

In France, several contracts were renewed,

such as the concession for the district heat-

ing network in Mons-en-Barœul, in the

north of France, and the thermal manage-

ment contract with the Paris urban planning

authority. Dalkia also won contracts to build

and manage heating networks in Falaise

(Calvados), and Faverges (Savoie), which will

be wood-fired. The company was selected

to manage the thermal and technical main-

tenance services of the departmental

administrative headquarters for the Nord

region, the Crédit Mutuel du Nord bank’s

220 branches in its northern Europe net-

work, and many health-care institutions,

such as the Bordeaux polyclinic.

In the industrial sector, Dalkia took over

steam production for the Vico plant in Vicq-

sur-Aisne. Usinor, EADS Launch Vehicles,

Arcelor, Papeteries Lucart, BP Lavera and

Naphtachimie also selected Dalkia as a

partner to assist them in newly deregulated

energy markets and awarded the company

new contracts in 2002.

In countries other than France, where Dalkia

generates 41% of its managed revenue,many


ENERGY SERVICES

In Usti nad Labem, Czech Republic, Dalkia operates two cogeneration plants serving the heating and hot water needs of over 100,000 people.

Dalkia’s facilities management servicesenable customers to concentrate on their core business.

>>

>

A pioneer in CO2

emissions permittrading

Dalkia was the only energyservices provider selected to takepart in the British government’sfirst Emissions Trading Schemeauction. With 138 customers forwhom it manages energyfacilities, Dalkia has committedto saving 100,000 metric tons of CO2 in the United Kingdom by2006. It shares the incentivepayments for each ton of CO2

saved with its customers.This is allowing Dalkia todemonstrate its know-how inreducing energy demand for its customers and to acquireexpertise in trading emissionspermits in the run-up to the creation of a Europeanmarket in 2008.



contracts were signed, especially in Europe.

They included the technical maintenance

services contract for the real estate assets of

the European Commission in Brussels.

After a flagship contract in 2001 with

Videocolor, an Italian subsidiary of Thomson

Multimedia, Dalkia continued to make

inroads on the industrial market in that

country with a contract from Manulifilm to

provide electricity, heating and cooling.

In Central and Eastern European countries

and the Baltic states, where Dalkia is one of

the leading private district heating network

operators, the major contracts signed with

Tallinn, Estonia, and Vilnius, Lithuania, went

into effect. Dalkia also signed its first indus-

trial contracts in the region, with a utilities

contract to provide compressed air, heat

and steam for Tonak, the world’s leading hat

producer, in Novy Jicin, Czech Republic.

A few acquisitions during the year strength-

ened Dalkia’s competencies in international

markets. The acquisition of DBU in the

Netherlands made Dalkia one of the lead-

ing companies in the Dutch technical

services and facilities management market.

The takeover of five companies from the

Swedish Maintech group gave Dalkia a

presence in the Swedish industrial services

market, where it won the technical services

management contract for the Volvo

Personvagnar site in Tordslandaverken.

Strategic priorities for tomorrow’s projects Its dynamic R&D enables Dalkia to continu-

ously improve its technical processes and

operating systems. It also enables the com-

pany to anticipate technological change in

the renewable energy field (solar energy,

biomass, etc.) and in power production

methods (microturbines and fuel cells).

The use of renewable energy and produc-

tion processes that help reduce greenhouse

gas emissions are central to Dalkia’s activi-

ties. In the United Kingdom, for example,

Dalkia was the only energy services compa-

ny selected to take part in the government’s

first Emissions Trading Scheme auction.

OutlookThe deregulation of energy markets, more

widespread concern with environmental

issues and the increasing tendency of

industrial customers to outsource their non-

core activities promise Dalkia further growth

over the coming years.

ENERGY SERVICES

A success in Italy

The acquisition of Siram in 2001 and its merger withDalkia Italy in 2002 havebolstered Dalkia’spositioning and broadenedits know-how in Italy.Siram has become thebenchmark in Italy for energyservices, facilitiesmanagement and industrialservices management.In its first year of operations,the new entity already has over 2,300 employeesand accounts for 8% of Dalkia’s internationalactivities.In terms of revenue, Siram isDalkia’s international leader, ahead of the UnitedKingdom and Czech Republic.

People are a service company’s mainasset. In 2002, Dalkia signed anagreement with the French associa-tion for adult professional training.

> Dalkia’s eye is constantly onenergy and environmentaloptimization.

> Start of a hot water circuit network: the temperatureregulator ensures hot water at the right temperaturefor thousands of homes.

> Combustion control at the heartof the burner- and the heartof Dalkia’s business.

>

>

In towns…Taking the metro, as for example here in Stockholm, consumes far lessenergy and produces far fewergreenhouse gases than taking the car.Connex’s “clean vehicles,” with electric traction or emission-reducingtechnologies, improve the environmental performance stillfurther.

…and in the countrysideConnex is also a specialist in rural public transportation, one of the bestmethods for combating rural depopulation. Transportation betweensmall towns is key to regional development, since it keeps people in the area and employs local labor.In France, as here in the Netherlands andother European countries, Connex oper-ates passenger transportation by road,helping to strengthen the local economy.

56

Transportation division operations around the world

Transportation division


2002 revenue

billion€ 3.42002 workforce

(total number of employees managed at December 31, 2002)55,200

France

Outside of France

Municipal

Industrial

Breakdown of 2002 revenue by customer type

37%

63%

95%

5%

TRANSPORTATION

Connex, Europe’s leading private operator of surfacepassenger transportation, is a specialist in outsourcedmanagement. As a full-service operator, it manages andoperates all types of urban, regional and national road andrail networks in 22 countries around the world. It alsoprovides freight transportation and logistics services.

A true full-service operatorConnex is a recognized and undisputed

specialist whose core business is operating

passenger transportation services for

municipal, regional and national authori-

ties. It carries out this activity on an

outsourcing basis, adapting to legislation

and approaches that differ from country to

country.

Connex primarily operates regular public

transportation routes according to a public

authority’s specifications and under contracts

won in competitive bidding. Outsourcing

by countries, regions and metropolitan

areas is becoming more and more com-

mon around the world, opening up a vast

potential market. Connex’s knowledge of

all transportation modes (local and inter-

city bus, train, metro, tramway, trolleybus,

boat, etc.) and its ability to adapt to local

conditions enable it to determine the best

solutions for each local context. It has the

capacity to set up whole networks, with

services that can range from design to

complete management.

To attract new passengers and win their

loyalty, Connex develops new products and

services: integrated information and fare

systems, call and itinerary-planning centers,

transportation on demand, complemen-

tary electric vehicle services for small areas

and management of multimodal trans-

portation hubs. It already has a major

competitive advantage in knowing how to

rationalize and optimize coverage of entire

regions and managing all mobility needs

within them. By offering passengers a com-

plete transportation chain, Connex is set to

become a unique travel and mobility serv-

ice provider.

With the 21,000 road and rail vehicles it

operates, the 55,200 people it employs and

the more than 1.5 billion passengers it car-



RevenueEBIT

2002

3,422

116

2001/2002 change+10.4%

+3.1%

2001

3,099

112

ries a year, Connex is very successful in

exporting its expertise. Its presence in

22 countries has made it the operator in its

market with by far the largest international

footprint.

2002: a year of growth2002 was marked by a substantial

revenue increase despite the end of the

South Central contract in summer 2001.

Projects concluded the previous year

were implemented and numerous new

contracts were signed.

In Western Europe, Connex continued to

consolidate its penetration, benefiting from

the trend toward market liberalization with

regulated competition. Among the year’s

highlights was an amendment to Connex’s

major contract on the South Eastern rail

lines serving south London and south-

eastern England, in recognition of the

company’s technical performance and

quality of service.

In addition, the Strategic Rail Authority’s

publications ranked Connex No. 1 of the

large companies serving the south London

region for the punctuality of its trains.

Escale, a new conceptand big improvement inquality of service

In Germany, Europe’s leading potential

market for public transportation, Connex

benefited from the regionalization of rail

service and became a major private service

provider in public passenger transportation.

In France, the interlinking of networks

across the country was completed with the

acquisition of Transports Verney.

In Scandinavia, Connex’s presence was rein-

forced by its selection in six competitive

bids and by a five-year extension of its con-

tract to operate Stockholm’s metro and

peri-urban tramways.

In Central and Eastern Europe, the gradual

opening up of passenger transportation to

private management is giving Connex an

opportunity to pursue targeted growth

in stable countries. For example, it was

awarded a contract to run the Certus urban

and inter-city transportation network in

Maribor, Slovenia. The 10-year contract

involves the management of 201 inter-city

vehicles that will be serving the country’s

entire northeastern region, as well as

53 city buses.


TRANSPORTATION

Paid servicesBeverage and candy machinesPhone cabin - Ticket dispenserPhotograph booth - NewsstandCar washss

Free servicesLoans of umbrellas - Bicycle rackDistribution of information

The 31,000 road and rail vehicles operated by Connexprovide transportation in metropolitan areas and boostthe local economy in regions.

Day in day out, Connex’s 55,200employees show their commitmentto good public transportation servicein 22 countries.

>>

Services>

>

Escale is a multimodaltransportation hub with servicesthat make life simpler for the residents of Saint-Étienne,in France. The system was set upby Connex and the municipalityon a tramway line.

The 16 services offered includeparking, a car wash, a beveragemachine, loans of umbrellas, salesof stamps and calling cards,a photograph booth, fax machineand customer advice.In addition, through a partnershipwith the city’s storekeepers,purchases can be delivered to the Escale stop.


In North America, where a similar trend

toward more open transportation markets

seems poised to continue, Connex con-

firmed its expertise in bus transportation.

In Australia, the commuter train franchise

in Melbourne received a boost by the sign-

ing of a significant amendment to the

contract at the end of 2002 with the State

Government of Victoria. The modification

improves Connex’s commercial position

and could help it increase its business in the

region as well as in the Asia-Pacific region.

A company built on thestrong commitment of itsentire staffMost employees in the transportation busi-

ness work in the field. They are in constant

contact with customers and project an

image of competence that reflects back on

their company’s capacity to perform.

For Connex, it is important to create the

working conditions that will bring about

staff commitment, motivation and initia-

tive. It does so by giving its employees the

possibility of working in teams on a human

scale that are decentralized, autonomous

and responsible. A corollary of this is ongo-

ing efforts in training to build up the

managerial capacities that can lead to

internal promotion. Staff commitment to

the company, job motivation and pride in

their work are the backbone of Connex’s

strategy.

OutlookIn the United States, Connex won a major

contract in rail transportation at the begin-

ning of 2003. It will take over operation of

the rail network of Boston and its suburbs

in July (see boxed text).

In Europe, a new 10-year contract has con-

firmed Connex as one of the leading private

passenger transportation operators in

Germany. The company will be managing

four new regional rail routes in North Rhine-

Westphalia, which represent a 240 kilome-

ter network.

TRANSPORTATION

Commuter trainnetwork operation for Boston

The new, five-year contractsigned in 2003 will representa total of €980 million and employ 1,600 people.The first commuter trainnetwork to be managed byConnex in the United States,it is 1,042 kilometers long and has 13 lines and 130 stations.With 89 trains, 462 depar-tures every day and 146,000 passengers carried per day, this commuter network is the fifth largestin the United States.The Canadian firmBombardier, a worldwidespecialist in the constructionand maintenance of rollingstock, is a minority partner inthe project.

Connex is a true full-service operator,with a presence in all segments ofpassenger transportation (train, localand inter-city bus, metro, boat, etc.).

> Connex operates rail servicesin Europe, Australia and,soon, the United States

> For Connex, one of the keys to its growth in publictransportation lies in building and managing multimodaltransfer hubs at train stations

> Already established in localtransportation in the United States,Connex is preparing to take overcommuter train operation in Boston.

>

>VE - 2002 Annual Report 59

60

Madrid, Spain

2002 revenue*:

billion€ 2.7 2002 workforce

55,800

Spain

Rest of the world

Breakdown of revenue by geographical area

Breakdown of revenue by market segment

FCC’s operations around the world

FCC

Public services (water, waste management, transportation, other)

Construction

Cement

Other

33%

49%

15%

3%

89%

11%

*Share attributable to VE: 49% of FCC

FCC FOMENTO DECONSTRUCCIONES Y CONTRATAS

FCC, which has been VE’s partner in Spain for the past fouryears, is one of the largest Spanish companies. It has beenlisted on the Madrid stock exchange since 1900 and operatesin various sectors of the construction and environmentalservices market. Spain is its largest geographical market (it isthe Spanish leader in urban waste management), but it isalso present in Latin America (through Proactiva, a jointventure with VE) and in the US cement sector.

A good year in 2002In Waste Management, a sector where it

holds very strong positions in Spain, FCC

secured the renewal for a 10-year period of

the waste collection and street cleaning

contract covering districts on the outskirts

of Madrid. Outside Spain, it won a 15-year

waste management contract for eastern

Cairo in Egypt.

Business posted brisk expansion in industrial

waste treatment, a sector that has substan-

tial growth potential.Volumes increased 47%

compared with the previous year.

In Water, FCC won 67 new contracts worth

a total of €635 million. At year-end 2002, its

order book stood at €4.7 billion.

In Road and Rail Transportation, a segment

in which FCC operates through a joint ven-

ture with Connex, the company was

entrusted with a major part of the manage-

ment of two future tram lines, currently

under construction in Barcelona.

In Construction, FCC won several major con-

tracts in Spain during 2002, including one

to build and operate a 62 kilometer section

of the Pampeluna-Logrono highway, a 16

kilometer section of high-speed rail track

and the Castrovido dam in Burgos.

Lastly, the semi-floating breakwater com-

missioned by the Monaco authorities, the

largest-ever project of this type in the

world, was completed and handed over.

Further investments were made in FCC’s

cement plants (six in Spain and three in the

US) to improve productivity and bring them

into line with environmental standards.



RevenueEBIT* *Share attributable to VE. VE consolidates FCC proportionately based on the 49% interest that it owns in the holding company.

2002*

2,653

250

2001/2002 change+8.1%

+9.1%

2001*

2,455

230


A FIRM COMMITMENTTO SERVING SUSTAINABLEDEVELOPMENT

Given the nature of its business, which focuses solely on the environment,

VE’s strategy has long been associated with sustainable development.

Under the guidance of the chairman of the Management Board, Henri

Proglio, the company strives to reconcile social responsibility, economic

growth and environmental balance wherever it operates. VE is driven by

the conviction that quality is the best guarantee of the long-term health

of a company and thus, is in the interest of its shareholders.

>SUSTAINABLE DEVELOPMENT

PRINCIPLES AND ACTIONS

What some are

discovering now as

a matter of urgency has

always been our way

of doing things.

H . P r o g l i o

“

”

Commitment with a structureBecause VE’s activities are local in nature, its

employees are involved in a number of

actions on the ground. This is where sus-

tainable development is central, through

using clean fuel and renewable energy,

combating greenhouse gases, recycling

water and recovering energy from waste.

Such environmental issues are reflected in

the company’s R&D programs and in the

Environmental Management System that

underpins its operations.

Development of the Environmental

Management System began for all VE sites

around the world in 2001, the year the com-

pany adopted the 10-point Charter on

Sustainable Development stating its commit-

ments. The Vivendi Environnement Institute

was created in November 2001 to reflect on

and anticipate environmental issues.

In 2002, considerable progress was made

internally on achieving the objectives of the

company’s Environmental Management

System and pursuing its policy on social

responsibility and innovative human

resources methods. At the same time, VE

made its international commitment more

explicit.

It signed a cooperation agreement with the

United Nations Institute for Training and

Research (UNITAR) on the sustainable man-

agement of cities and improving the living

conditions of poor populations. In prepara-

tion for the Johannesburg Summit, from

the end of December 2001 to July 2002, VE

organized four forums on sustainable

urbanization in France, South Africa, Brazil

and China. More than 800 people took part,

including mayors, regional managers, UN

representatives, and heads of non-profit

organizations and NGOs.

This type-2 initiative with UNITAR, in

which VE is the only private company, was

Every year, VE publishes

a report on sustainable

development that

presents its policy in

detail. The Sustainable

Development Report

for 2002 is now available.

If you would like a copy,

call our toll-free number

in France 0 805 800 000

or download it from the

Internet (see page 88).

For more information>


approved by the French preparatory com-

mittee for the Johannesburg Summit.

VE’s adherence to the Global Compact in

May 2002 rounded out the company’s

approach and reflected the strength of

its commitment. Beyond its endorsement

of fundamental principles, which are

very close to those in VE’s Charter of

Fundamental Social Rights and Charter on

Sustainable Development, the company

has set up partnerships with specialized UN

institutions and NGOs on specific projects

involving working with local authorities in

combating urban poverty.

In addition, VE sits on Comité 21, France’s

commission for the environment and sus-

tainable development, which sets the

agenda for projects. VE contributes its

expertise and shares its experiences.

Johannesburg: a new phaseVE presented the results of its actions at the

Earth Summit in Johannesburg in August

2002, delving more deeply into the con-

cepts underlying its approach and defining

its working methods.

In addition to promoting dialogue between

VE’s representatives and the UN experts

with whom it works on a daily basis, the

summit confirmed a new approach to devel-

opment aid either under public-private

partnerships or through direct assistance for

local territorial authorities, the importance

of whose role was recognized.

An original initiative:competence centers VE took advantage of the Johannesburg

Summit to present its type-2 initiative: rein-

forcing local capacities and training for

sustainable urbanization through public-

private partnership. This translates into the

creation of competence centers where the

company will exchange information with

its partners (mayors, civic leaders and

municipal technical staff), contribute its

expertise in order to reinforce local capabil-

ities, and help with training in sustainable

development technologies. The first four

regional centers have been decided on

> SUSTAINABLE DEVELOPMENT

PRINCIPLES AND ACTIONS

under UNITAR sponsorship. VE will bring its

expertise to bear in helping the municipali-

ties through training sessions in Curitiba

(for South America), Durban (for English-

speaking Africa), Ouagadougou (for

French-speaking Africa) and Kuala Lumpur

(for Asia Pacific). The programs for civic

leaders and territorial managers will be part

of the European Union’s new Sustainable

Cities and Towns Campaign. The relevant

agreements were signed in 2002 and the

budgets have been allocated.

The centers will be established in the course

of 2003 and will become fully operational in

2004. They will be evaluated in 2005.

The experiments carried out will make up a

database accessible via the Internet so that

civic leaders can track down the technical

solutions that will best serve their needs.

Global Compact

Introduced by the SecretaryGeneral of the UN, Kofi Annan,in 1999, the Global Compact is aprogram of action entailing firmcommitments by participatingcompanies. The actions must becarried out in partnershipsbetween the private sector andspecialized UN bodies (such asUNITAR and UNICEF), NGOs andpublic authorities. VE joined theGlobal Compact in May 2002.

www.unglobalcompact.org

Agenda 21

Adopted in 1992 at the EarthSummit in Rio, Agenda 21 is aglobal action plan directed toward sustainable developmentwherever human activities have an impact on the environment.It is up to governments to incorporate it into law andcompanies to come up with an industrial version of Agenda 21.

www.comite21.org

VE’s approach

• Adoption of a Charter onSustainable Development in 2001

• Introduction of an EnvironmentalManagement System, which,by gradually incorporatingsocietal elements, will evolve intoa Sustainable DevelopmentManagement System

• Introduction of a reporting systemwith external validation.

www.d.durable.veoliaenvironnement.com

For more information



VALUE CREATION

VALUE CREATION, THE KEY TO SURVIVALWhile the ethical foundations ofsustainable development have beenestablished beyond all doubt,VE firmly believes that it also needsto create value if it is to secure thisapproach in the long term.

Value creation VE,which is committed to sustainable devel-

opment, has put value creation for all its

partners–customers, users, employees and

shareholders–at the heart of its strategy,

while endeavoring to expand harmo-

niously and to respect the world in

which it operates.

ROCE, a key performanceindicatorTo monitor the company’s operating, eco-

nomic and financial performance, the

finance department has introduced several

indicators.

The most representative is return on capital

employed (ROCE), which measures VE’s abil-

ity to generate a return on the funds provid-

ed by its shareholders and lenders. ROCE

can then be analyzed in relation to VE’s

weighted average cost of capital (WACC),

which is the average of its cost of equity, i.e.,

the rate of return required by shareholders,

and its after-tax cost of financing. VE is

seeking to improve its ROCE in several ways,

by expanding its business, enhancing its

efficiency and actively managing its asset

portfolio.

In addition, VE invests in new projects only

where the internal rate of return exceeds

the projected WACC, including country risk,

by a minimum of 2%.

ROCE is highly sensitive to the pace of

growth.The further a company expands, the

more it invests and the larger its capital

employed becomes, while operating income

increases only when the new assets reach

cruising speed. The exceptional portfolio of

contracts won by VE over the past few years

What is ROCE?

It is calculated for a given period by dividing:

• operating performance:as measured by EBIT (operating income before goodwillamortization and restructuring costs) + share in netearnings of companies accounted for by the equity method- tax expense;

• by the average of capital employed:net fixed assets + gross goodwill - non-recurring goodwill amortization + working capital

requirement + investments in companies accounted for under the equity method, before goodwill amortization

- provisions for risks and liabilities - other long-term liabilities and subsidies (excluding

cogeneration plant financing).

A P E R F O R M A N C E I N D I C A T O R>

VE shares eligible for sociallyresponsible investment funds

“The way we invest our money creates the world in which welive”, said Amy Domini, one of the pioneers of sociallyresponsible investing (SRI). Even though SRI still accounts foronly a modest proportion of total assets under third-partymanagement,the approach has enjoyed spectacular growth,withrelevant assets under management estimated at €3,000 billionat year-end 2002. It is believed that one of every eight dollarsof new investment in the United States is assessed based onsustainable development criteria.VE shares,which were selectedduring 2002 by Ethibel, an independent Belgian sustainabledevelopment rating agency, are thus recognized as being along-term investment of high quality.

E T H I C A L F U N D S>

should enable it to continue growing at a

brisk pace from 2003 onwards,while posting

a stronger ROCE at the same time.

Economic performance plays an integral

part in the long-term success of any com-

pany. Consequently, it is also taken into

account by investors on the financial mar-

kets who analyze the ethical aspects or

social responsibility of their investments.

The reason why VE has survived into its

150th year is precisely because of its ability

to expand harmoniously in its original busi-

ness activities throughout its history.

Senior management constantly takes

decisions that maintain the balance

between growth (a factor in long-term

value creation) and rapid profitability,

depending on the expansion opportuni-

ties that arise and its financial constraints.

Moves to strengthen VE’s balance sheet

during 2002 have given management all

the flexibility it needs.


Protecting the environment is an integral part of VE’s business

activities. Through its daily operations around the world,

VE demonstrates its commitment to protecting natural environments,

preserving resources and reducing pollution at all of its own sites,

as well as those operated under contract for its public-

and private-sector customers.

66

>

ENVIRONMENTALMANAGEMENT THROUGHOUT OPERATIONS


ENVIRONMENTAL RESPONSIBILITY

>


ENVIRONMENTAL RESPONSIBILITY


A sophisticated EnvironmentalManagement SystemFor several years, VE has endeavored to

establish clear priorities for sound environ-

mental management. An action plan has

been prepared and objectives defined for

each environmental priority.

An Environmental Management System

was introduced in 2000 and has since been

fine-tuned, with quantified targets set,

including a timetable for their achieve-

ment, which runs to 2005. This was

considered as a first step

A worldwide reporting systemTo back up the Environmental Management

System, VE introduced a worldwide report-

ing system across all its divisions based on a

common measurement protocol. Under

this system, data can now be processed effi-

ciently and conclusions drawn about which

are the most effective indicators for achiev-

ing progress toward quantified targets.

Dedicated management unitVE’s efforts in this area gained a new

dimension during 2002 with the creation of

a management unit responsible for over-

seeing the system, implementing action

plans and measuring the progress achieved

each year based on quantified indicators.

A dedicated committee, which is led by the

Sustainable Development department and

comprises representatives of the divisions

and the functional departments, was set up

in 2001 to establish and monitor VE’s envi-

ronmental priorities. It continued its work

during 2002, when it met 10 times.

Implementation of VE’s environmental

management policy is a vast project involv-

ing each of the divisions, both individually

and in partnership in certain areas. To this

end, all employees have been kept informed

about environmental goals and work

toward achieving them. Multi-year action

This program, which was launched in 2000

and developed during 2001, was extended

further during 2002. Each division set about

adapting the audit systems to its own specif-

ic characteristics. VE’s main target is to have

80% of its priority sites audited by 2005.

Priorités actuellesPriority targets

VE is committed to improving

its environmental management.

The company has undertaken

to monitor and report on its

progress toward the following

objectives:

1. Preserving natural resources

• Preserving water resources by limiting leakage and wastage and by bringing the company’sconsumption under tighter control.

• Preserving soil and biodiversity,notably by increasing the agricultural recycling of waste.

• Economizing on raw materials by promoting waste recycling andrecovery.

• Conserving energy resources by enhancing the energy efficiency of thermal facilities.

2. Curbing polluting emissions

• Combating climate change and the greenhouse effect by furtherreducing CO2 emissions from energy activities and by developing biogas processing at landfill sites.

• Limiting air pollutants by usingcleaner fuels and vehicles and by improving stack gas treatmentprocesses.

• Reducing local pollution such as noise and odors and by promotinglandscape integration, etc.

• Curbing discharges into water by improving the treatmentof industrial discharges and leachatefrom landfill sites as well as thetreatment efficiency of wastewaterplants.

plans and precise targets for each aspect

have been defined division by division and

site by site across the entire company.

The sustainable development committee

ensures that the entire strategy remains

coherent, in line with the guidelines laid

down by senior management.

Widespread deployment of anexternal accreditation programThe Environmental Management System

includes an audit program to ensure that

priority sites conform to regulations and

that they improve their performance.

68

AN AMBITIOUS HUMANRESOURCES POLICY

>

VE has adopted a sustainable development approach to its human

resources policy. The company aims to offer its 302,000 employees

the best possible conditions for work and career development,

encourage skills management and training, and anticipate

demographic changes and their foreseeable impact on employment

and qualifications. In addition, it aims to be innovative in the field

of human resource management and in its interactions with society.


SOCIAL RESPONSIBILITY


As an international company, with two-

thirds of its employees working outside

France,VE encourages empowerment at the

local level. During 2002, a year of transition,

the company defined and implemented

common methods and tools across all its

divisions.

Knowing more about ourselves:deployment of the HR reporting systemIn 2002, VE built a worldwide human

resources (HR) database containing some

100 indicators for each company and each

country.The database will be updated every

year by all of the companies.

Internal communication on employee-relat-

ed indicators–number, movement, pay,

training, period of employment, safety and

labor relations–enables all employees to

situate themselves within VE.The reporting

system also allows VE to track labor trends

and is extremely useful for the implemen-

tation of targeted HR policies.

With over 200,000 items, the HR database

is exceptional by virtue of its scope and

depth. It plays an essential role in enabling

VE to respond to the growing demand for

accurate and detailed information about

human resources, both internally and from

the media, investors and social responsibili-

ty rating agencies. The data also provides

the company with all of the quantified ele-

ments to be included in its annual report in

compliance with France’s new economic

regulations (NRE)*, as well as a very high

number of other indicators in every country

where VE has operations.

VE’s approach is innovative in that it

combines the production of quantified

indicators with the work of the Social

Observatory, which has as its mission to

produce forward-thinking studies and

research to add to the company’s knowl-

edge on HR practices, training and skills

evolution.

VE carried out its first significant internal

satisfaction survey: 1,000 managers in

eight countries were questioned by French

polling agency CSA on their vision of the

company and professional experience. The

survey will be repeated regularly in order to

monitor managers’ opinion on VE and their

division.

Developing skillsOne of VE’s strongly held goals is to provide

employees with the opportunity to follow a

top-quality career path through a training

and skills management policy that makes

the company a real “social ladder”.

Annual training expenditure amounts to

2% of the payroll worldwide and almost

2.5% in France.

More than half the personnel around the

world, and two-thirds of employees in

France, benefited in 2002 from a training

program.

The Urban Environment Institute (UEI) is

the training center responsible for coordi-

nating the company’s entire training policy.

It offers 15 types of qualifying diploma from

vocational certificates to university degrees.

In 2002, the institute provided 313,000

hours of training, 60% of which was in the

form of apprenticeships and 40% as contin-

uous education. In all, 6,378 trainees

attended the institute, which implemented

37 new programs.

To date, VE has helped around 1,000

employees gain access to qualifications

>

2001 2002

Change in workforce

295,285

Men

56,331 58,388

238,954 243,895

302,283

The total workforce comprised 302,283 employees managed at December 31, 2002. Of these, two-thirds were located outside France. The figure includes 100% of the entire workforce of all VE

Women

WaterWaste managementEnergy servicesTransportationFCC

25.7%24.3%

13.3%18.3%18.4%

Breakdown of workforce by division at December 31, 2002

Breakdown of workforce by geographical area at December 31, 2002

FranceRest of EuropeAmericasAfrica & Middle EastAsia & Oceania

33.5%44.8%

14% 3.5%

4.2%



* See the document de référence published by VE.

through the validation of work experience.

Now, under the new validation of experi-

ence mechanism, the company is giving

even more employees the possibility of hav-

ing their career path recognized by a

qualification, triggering true HR promotion

and skills development impetus.

The initial and continuous training pro-

grams offered by the UEI focus on VE’s four

business activities, and increasingly incor-

porate the cross-division dimension. Of the

12 diplomas prepared in initial training, for

example, four are cross-divisional.

The training policy is deployed internation-

ally through centers around the world:

Germany, Spain, Italy, the Czech Republic,

UK, Egypt, Gabon, Morocco, USA, South

America, Hong Kong, China, Malaysia and

Australia.

In response to the challenges of interna-

tionalization and the rapid evolution of

skills, the UEI has started down the path of

educational and technological innovation,

providing additional and very diverse pro-

grams using the most advanced teaching

methods that draw on new technologies

such as the Internet and intranet. Around

1,000 people a year, for example, follow the

distance-teaching program on household

waste incineration plant management

operations.

Several hundred employees from the

Transportation division are trained annually

on a newly developed train driving simulator.

In 2001, the UEI set up a Schools Relations

department to address the company’s

recruitment needs five years into the future.

A Campus Club, which brings together

managers from all four divisions, organizes

a presence at the forums of France’s top

schools, where contacts have already been

established with over 1,800 students.

Organizing job mobilityVE organizes and strongly encourages its

employees to transfer between divisions,

One of VE’s strongly

held goals is

to provide employees

with the opportunity

to follow a high-quality

career path.

“


”

> SUSTAINABLE DEVELOPMENT


Continuous training programs in environmental services

The UEI is constantly pressing ahead, as illustrated by the recentcreation of a school to train people how to sell environmentalservices to industry and by the overhaul of the university degreein urban services management. Inter-division synergy is alwaysa top consideration. An induction seminar for managers bringstogether almost 700 colleagues a year from all divisions andfrom all around the world. It gives the newly hired managers anall-embracing vision of VE and its businesses, and enables themto establish networks beyond their own division.

T H E U R B A N E N V I R O N M E N TI N S T I T U T E ( U E I )

>

line with each other. In addition to the

charter, a special healthcare and pension

package was introduced for all expatriates.

Short-term job mobility consists of creating

ad hoc teams to work outside their base

country in an approach that is increasingly

encouraged.

Anticipating changes in skillsrequirementsSkills management is a major component

in VE’s human resources policy. It has to

enable employees to do their jobs in the

best possible conditions but, even more

importantly, it has to take into account the

changes in skills required.

VE is going to have to cope with two dia-

metrically opposed factors in the future: an

increase in the number and range of cus-

tomer requirements and a shortage of labor

due to population aging.

Under these circumstances, employees

must at all times be able to update their

knowledge and implement new skills. This

is where continuous training is absolutely

essential. VE has therefore launched a com-

pany-wide study on career paths, training,

evolution of skills and organization of work.

Improving social coverageIn all countries where VE operates, it seeks

top quality insurance (sickness, disability

and death) and pension coverage for

businesses, regions, countries or functions.

Many mechanisms have been set in place

for that purpose.

The annual appraisal meeting, which has

become fairly widespread throughout the

company, serves to identify the job mobility

aspirations of each employee. Moreover, a

company-wide profiling of management

jobs aims to encourage and facilitate the

mobility of VE’s 29,000 managers.

A recruitment Web site* lists job opportuni-

ties within VE in France, and will be

extended to other countries in 2003. In

addition, starting with France, a job mobili-

ty intranet site was launched for employees

in early 2003.

Inter-function mobility is made possible by

continuous professional training, which can

help employees who want to change jobs

and acquire the skills needed for their new

position.

Inter-division transfers are facilitated by

training packages that enable employees to

acquire multi-business skills suitable for all

divisions.

The international job mobility policy led to

the introduction of a charter drawn up in

2002. The charter, which defines the recip-

rocal commitments and the guarantees

given to expatriates, brings existing prac-

tices in subsidiaries around the world into

employees. The company uses its size

and international dimension to improve

healthcare expenditure and insurance

guarantees, as well as control the premium

costs.

In 2002, VE pooled all health, disability and

death insurance contracts, thereby achiev-

ing economies of scale and optimizing

coverage. At the end of 2002, over 130,000

employees were covered by pooled insur-

ance.

Promoting occupational safetyVE adopts a determined approach and

innovative means to develop an accident

prevention culture in order to achieve a

higher level of safety, control risks and pro-

tect health at the workplace, as well as seek

better working conditions.

There are 7,300 consultation structures

within VE that enable management and

employee representatives to discuss acci-

dent prevention and protection issues.

Many actions were carried out within each

division, and these will be reinforced in

2003 in order to reduce accident frequency

and gravity.

At Connex, for example, individual assis-

tance is proposed to bus drivers who are

victims of aggression at work. Operation of

this scheme on the Amiens network was

rewarded by the European Agency for

Safety and Health at Work in November




*www.veoliaenvironnement-rh.com


2002. Onyx introduced a road accident pre-

vention program for all vehicle drivers

working for SARP. Despite a 46% increase in

the number of vehicles within two years,

the accident frequency rate dropped 22%

over the same period.

Encouraging HR innovationIn a drive to increase HR innovation,VE invi-

ted its subsidiaries to introduce labor

initiatives and pool their experiences.

In 2002, over 220 initiatives were launched

around the world.

The manual of HR initiatives is an espe-

cially innovative tool. It covers all areas relating

to employment, training, social integration,

occupational safety, pay and corporate citi-

zen actions. Its aim is to showcase and

disseminate within the company the HR

initiatives that have proved interesting on

the ground.

nity to be associated with the company’s

growth over the long term.

In line with the authorization granted by

the Shareholders Meeting on April 25, 2002,

an employee stock purchase plan was set in

place. In early 2003, an employee invest-

ments supervisory body was created. The

structure comprises representatives of

employee shareholders, labor unions and

management.

In addition, managers and senior executives

participate in VE’s business performance

through stock option plans. A new eight-

year plan was launched in 2002 with 1,400

beneficiaries.

Socially responsibleVE’s determination to make a positive con-

tribution to its external environment has led

it to make concrete commitments to civil

Fostering dialogue at the local levelWithin VE,where there are 12,000 employee

representatives and labor union delegates,

dialogue on labor issues is decentralized to

the most appropriate local level. The quest

for maximum efficiency guides the design

of labor relations in each VE company and

each country by incorporating the specific

local and national features arising from the

legislation covering that area.

Internal procedures ensure the feedback of

information to the corporate level when

necessary. A new European works council

will be created in 2003.

Encouraging employeeshareholding and performance-related incentivesVE launched an employee shareholding

plan in 2002 to give personnel the opportu-

72

>

Sharing best practices

To make good HR initiatives known to the widest audiencepossible, a manual was published early in 2003.

Examples of the initiatives described in the collection include:>In France: making a physical therapist available to baggagehandlers at Paris’s Charles de Gaulle airport, along with a massage room and gym, with a view to preventing andrelieving back pain. This initiative won the 2002 trophyawarded by Aéroports de Paris for HR initiatives.>In the United States: introduction of a centralizedconsultation system enabling employees to discuss their careeropportunities.>In Sweden: bonus offered to drivers who reduce their dieselconsumption.

H R I N I T I A T I V E S>




society. For several years, the company has

been expressing its corporate citizenship

through actions in favor of employment,

participation in teaching and training

efforts, environment and health education

programs and many sponsorship activities.

The company has introduced sponsor-

ship for projects related to protecting the

environment, in particular in the water

segment, and collaborates with universi-

ties and schools to raise young people’s

awareness on the issues involved.

VE also participates, alone or in partnership

with NGOs, in various humanitarian pro-

grams in the event of natural disasters or

serious incidents around the world.

>

Such a partnership was, for example, signed

in 1998 with the French Red Cross in order to

provide know-how that is useful to manag-

ing water and sanitation projects anywhere

in the world.

A rapid action team, known as Waterforce,

can be mobilized to deal with emergencies

and help local populations.

In 2002, Waterforce worked in partnership

with the Red Cross in Pakistan to accommo-

date Afghan refugees and in the Congo

following the eruption of a volcano in

Goma.

It also provided technical assistance during

the August 2002 floods in Germany, and

carried out a rehabilitation program for the

pumping stations and water supply net-

work of Laç, Albania.

Other examples of social initiatives include:

• in Brazil, where it manages the services

in many shopping centers, Dalkia has hired

the 140 employees–half of whom are

illiterate–of the Morumbi center in Sao

Paulo and created a school to teach them

literacy skills and prepare for the state

examinations.

• VE provided aid in 2002 to the

populations who suffered damage from

the serious floods in Germany and the

Czech Republic (V. Water, Dalkia, Connex).

• A “Let’s clean nature” program was

launched by the apprentices at the Urban

Environment Institute in 2002.



Sequoia and the employee stock purchase planThe employee stock purchase plan, which was launched inJuly 2002 for employees in France, will be gradually extendedinternationally during the first half of 2003 subject to stockmarket and tax regulations applicable in the variouscountries concerned. Despite the very unfavorable stockmarket climate in 2002, the employee stock purchase planrecorded subscriptions from 30,000 employees in France,representing one out of every three employees. Under theplan, employees can choose between four mutual funds,including the Sequoia Fund made up of VE shares and a fundnamed by the labor union committee on employeeinvestments. In line with the very advanced corporategovernance principles, all employee shareholders receiveinformation about the company’s financial performance andare invited to the Shareholders Meeting, where they canfreely exercise their right to vote.

H R I N I T I A T I V E S>

74

ETHICS, RESPONSIBILITY AND RISK MANAGEMENT

Since it operates in an increasingly complex environment,

VE strives to implement increasingly effective preventive and risk

management systems. The coordinating committee for

the assessment and prevention of risks is dedicated to identifying

and ranking risks and modeling protection systems.

> RISK MANAGEMENT


In line with the commitments given in its

2001 annual report, VE has drawn up an

“Ethics, conviction and responsibility” char-

ter, laying down principles guiding the

company, its subsidiaries and employees in

their day-to-day activities.

In particular, this charter underscores the

values of loyalty, social responsibility and

commitment to sustainable development

and provides for the creation of an ethics

committee,which will begin its work during

2003. Information about the charter will be

widely distributed so that employees are

aware of its contents.

Risk preventionVE’s business model, with its activities very

close to the field and a major international

presence, has prompted management to

place particular emphasis on risk manage-

ment and prevention.

The coordinating committee for the assess-

ment and prevention of risks, which was

formed in October 2001 and comprises the

heads of each division and functional

department, has continued its work. If

required, it can call upon the services of

highly qualified external experts.

This committee helps to identify and rank

risks and to model protection systems. The

work carried out during 2002 in these vari-

ous areas will be continued during 2003 as

part of a multi-year plan based on memo-

randa and procedure guides with a focus on

three areas: (i) legal risks, (ii) industrial, envi-

ronmental and health risks, and (iii)

financial risks. International and human

resources aspects will be included.

Managing legal risksFirst and foremost, VE conforms to all its

legal and regulatory obligations and fulfills

its duties to its customers, all its partners

and service users.

VE also strives to promote the principles of

corporate governance in order to create

shareholder value and deliver transparent

information.

Its ethics charter has thus enabled it to for-

mulate guidelines for monitoring legal risks

covering criminal liability, anti-corruption

measures, the prevention of conflicts of

interest, supplier relationships, safety in the

workplace, partnerships and sponsorship

programs.

Managing industrial,environmental and health risksThese risks may be caused by the operation

of facilities or by incidents causing environ-

mental pollution.

Mindful of its responsibilities, VE imple-

mented two priority action plans during

2002.To diminish the risk of malicious dam-

age, the first consisted of tightening up the

security arrangements at installations and

conducting a security audit at pilot sites,

leading to an assessment of their vulnera-

bilities and an improvement in their

protection.

The second, which focused on public health

risks, led to the improvement of internal risk

management arrangements, including

greater know-how in risk assessment, the

development of risk prevention systems

and techniques, and increasingly sophisti-

cated analytical techniques and research

into specific corrective measures.

In both cases, large-scale employee training

and awareness-raising programs were

introduced. Further up the operational

chain, VE’s Research and Development

department contributes to the advance-

ment of knowledge about public health

risks and emerging dangers by cooperating

with university research teams.

Managing financial risksBecause of the nature of its business, VE is

exposed to several different types of finan-

cial risk, including through guarantees,

interest rates, exchange rates, counterpar-

ties, relations with shareholders, customer

credits, supplier credits, credits to business

partners and the equity markets.

For efficient control, the management of

liquidity, exchange rate, interest rate and

counterparty risks is centralized at the cor-

porate level. Exchange rate risk associated

with investments made outside France is

covered primarily by debt in the relevant

subsidiary’s functional currency. Liquidity is

managed at the corporate level.

Subsidiaries’ treasury is centralized by divi-

sion, then by VE, thereby ensuring a fluid

flow of funds between its various entities.

VE checks the commitments given by sub-

sidiaries using various internal reporting

systems. Only the Management Board,

under the authorization of the Supervisory

Board, has the power to enter into com-

mitments and issue guarantees, which

are subject to an overall limit and a ceiling

for each individual transaction. The com-

mitments committee is kept regularly

informed of the use of this authorization.

>RISK MANAGEMENT

76

RESULTS FOR THE YEAR

FINANCIAL PERFORMANCE

Further growth

During 2002, VE enjoyed another year of

sustained business growth in spite of the

very challenging international conditions.

By pursuing its policy of expanding through

organic growth and the integration of the

selective acquisitions realized during 2001,

VE was able to post a 3.3% increase in its

consolidated revenues to €30.079 billion

(compared with €29.127 billion during

2001).

Revenue posted by the core businesses (i.e.,

excluding units disposed of or in the process

of being sold) came to €28.073 billion, repre-

senting an increase of 5.9% or 7.2% at

constant exchange rates. This rise was driv-

en by solid organic growth (5%), which was

particularly strong outside France (7.5%). Of

the negative impact of currency fluctuations

(€350 million), two-thirds was attributable

to the fall in the US dollar, with movements

in Latin American currencies having only a

modest impact.

The revenue contribution from non-core

businesses came to €2.006 billion, com-

pared with €2.614 billion in the year to

December 31, 2001 owing to the impact of

businesses disposed of during the year.

Revenue in France advanced 5% to €13 bil-

lion (with core businesses posting a 5.2%

rise to €12.7 billion), while revenue outside

France increased 2% to €17.1 billion in 2002

(with core businesses recording a 6.4%

increase to €15.4 billion).

Revenue increased across all VE’s geograph-

ical regions, except in the Americas owing

to three main reasons:

• unfavorable currency effects deriving from

the depreciation in the US dollar and, to a

lesser extent, in certain Latin American

currencies against the euro;

• the disposal of US Filter’s non-core busi-

nesses;

• the non-renewal of the Puerto Rico con-

tract on July 1, 2002.

In 2002,VE had a healthy breakdown of rev-

enue between its customers in the

municipal (65%) and industrial and tertiary

(35%) segments.

Further commercial success

Aside from the revenue growth achieved

during 2002, VE won various municipal and

industrial outsourcing contracts during the

year. In particular, it was awarded a number

of contracts by combining the services

offered by its various divisions.

This commercial performance demonstrated

the success of the strategy pursued by the

company and the growth potential of its

markets. The municipal outsourcing con-


>

Solid earnings

performance

during 2002.

“

”



>

tracts signed during the year underscore its

ability to capitalize on the international

positions established in recent years by all its

divisions. These contracts included Pudong,

Indianapolis and Atlanta in Water; Camden

and Singapore in Waste Management;

Poznan in Energy Services; and Boston in

Transportation.

VE was also awarded some significant con-

tracts in industrial outsourcing, as well as in

the broader business services market.

New business won during 2002 was signif-

icantly higher than in 2001. In particular, VE

benefited from the emergence of a new

market segment, the outsourcing of envi-

ronmental services by major industrial

companies.

Healthy operating performanceby the core businesses

The 2.1% decline in consolidated EBIT, to

€1.971 billion from €2.013 billion the previ-

ous year, was primarily the result of the

disposal of non-core businesses during

2002 and unfavorable currency effects.

Conversely, the EBIT recorded by core busi-

nesses increased 1.9% from €1.813 billion in

2001 to €1.847 billion in 2002, representing

a rise of 3.2% at constant exchange rates.

All the divisions contributed to the rise in

EBIT posted by the core businesses.

Despite the Water division’s 6% decline in

EBIT, the division’s core businesses recorded

a 2.9% increase (4.2% at constant exchange

rates) in their EBIT. The ramp-up in interna-

tional contracts and further evidence of

recovery at V. Water Systems offset the

slowdown in the US industrial equipment

market and higher insurance costs.

The Waste Management division’s EBIT

came to €385 million, up 5.0% at constant

exchange rates excluding Proactiva and

down 1.4% after currency effects and

including Proactiva. The division benefited

from the initial measures designed to raise

its profitability against a tough economic

backdrop.

The 10.7% increase in the Energy Services

division’s EBIT (up 9% at constant exchange

rates) was attributable primarily to the inte-

gration of SIRAM in Italy and expansion in

northern and central Europe.

The Transportation division’s EBIT moved up

3.1% (2.9% at constant exchange rates) as

the new contracts signed in Europe and the

United States more than offset the impact

of the non-renewal of the South Central rail

franchise in the UK in 2001. Lastly, FCC’s EBIT

increased 9.1% (9.4% at constant exchange

rates) due in particular to strong profitability

in municipal services.

Reduction in net financialexpense

VE’s net financial expense fell almost 19%

from €798 million in 2001 to €648 million

owing to the reduction in net debt and

lower borrowing costs.VE’s average interest

rate stood at 4.25% in 2002, down from

4.85% in 2001.

Significant decrease in non-recurring items

All non-recurring (or exceptional) items

posted a significant decrease during 2002.

This trend was attributable primarily to

the reduction in non-recurring goodwill

amortization to €77 million in 2002 from

€2.652 billion in 2001. The non-recurring

items posted during 2002 principally

included restructuring costs (€57 million),

provisions and write-downs relating to

activities in Latin America (€47 million) and

provisions and write-downs relating to a

German subsidiary (€25 million), which were

offset partially by the after-tax capital gains

posted on asset disposals.

Improvement in earnings

After non-recurring items, net income was

€339 million in 2002, compared with a net

loss of €2.252 billion the previous year,

which was badly affected by non-recurring

items during 2001.

Excluding non-recurring items, net income

came to €429 million in 2002, up 2.1% com-

pared with the €420 million reported in 2001.

Earnings per share

In view of the increase in the average num-

ber of shares outstanding during 2002,

recurring earnings per share came to €1.16

versus €1.20 in 2001

78


CONSOLIDATED INCOME STATEMENT

2002 2001 2000(in millions of euros) pro forma

Revenue 30,078.7 29,126.7 26,262.5

Cost of sales (24,638.1) (23,550.9) (21,107.0)

Selling, general and administrative costs (3,508.8) (3,556.7) (3,254.5)

Other operating costs 39.5 (6.0) (251.0)

EBIT 1,971.3 2,013.1 1,650.0

Restructuring costs (56.6) (49.4) (54.4)

Operating income before goodwill amortization 1,914.7 1,963.7 1,595.6

Goodwill amortization(1) (327.2) (2,910.1 (306.3)

Operating income/(expense) after goodwill amortization 1,587.5 (946v4 1,289.3

Cost of financing (680.9) (764.2) (875.3)

Other financial income and expense 32.8 (33.8) (16.5)

Net financial income/(expense) (648.1) (798.0) (891.8)

Operating income/(expense) less net financial expense before equity and minority interests 939.4 (1,744.4) 397.5

Other income and expense (59.7) 38.9 777.3

Income/(expense) before tax 879.7) (1,705.5) 1,174.8

Income tax (437.3) (462.3) (459.2)

Net income/(expense) before equity and minority interests 442.4 (2,167.8) 715.6

Share in net earnings of companies accounted for by the equity method 39.0 47.8 60.6

Minority interests (142.2) (131.2) (161.4)

Net income/(loss) 339.2 (2,251.2) 614.8

Undiluted earnings per share (in €) 0.90 (6.60) 2.20

Fully-diluted earnings per share (in €) 0.90 (6.60) 2.20

(1) Including non-recurring goodwill amortization of €77.0 million in 2002, €2.652 billion in 2001 and €74.2 million in 2000.


>

79


RECONCILIATION OF 2002 NET INCOME TO RECURRING NET INCOME

Recurring Non- Total (in millions of euros) recurring 2002EBIT 1,971.3 1,971.3

Restructuring costs (56.6) (56.6)

Goodwill amortization (250.2) (77.0) (327.2)

Net financial income/(expense) (706.0) 57.9 (648.1)

Other income and expense (59.7) (59.7)

Share in net earnings of companies accountedfor by the equity method 39.0 39.0

Minority interests (177.3) 35.1* (142.2)

Income tax (448.3) 11.0 (437.3)

Total 428.5 (89.3) 339.2

(*) including €21 million relating to Proactiva and €13.8 million to Berlin Water companies.

Net income came to €339.2 million, compared with a net loss of €2.251 billion in 2001.Recurring net income, which represents net income before non-recurring items, stood at €428.5 million, up from €420 million in 2001.

As illustrated by the above table, recurring net income is made up of EBIT plus or minus the recurring portion of the net financialresult after nominal income tax, the share in net earnings of companies accounted for by the equity method, the recurringportion of goodwill amortization and minority interests.

Based on the average number of shares outstanding during 2002, i.e., 370.7 million compared with 346.2 million in 2001,earnings per share came to €0.90 in 2002, compared with a net loss per share of €6.60 in 2001.

Recurring earnings per share came to €1.16 in 2002.


>

80



>

INVESTING AND FINANCING ACTIVITIES

Rigorous

assessment

of investment

projects

“

”

Capital expenditures andfinancial investmentsCapital expenditures and financial invest-

ments during 2002 totaled €3.378 billion,

69.6% of which was devoted to capital

expenditures and 30.4% was for financial

investments.

Maintenance capital expenditures (or for

replacements) again amounted to slightly

over €1.3 billion during 2002. Conversely,

capital expenditures for growth and finan-

cial investments fell 9.6% to €2.4 billion, in

line with management’s policy of adopting

a more selective approach to projects

owing to the current economic and finan-

cial conditions and greater emphasis on

the development of services not requiring

capital expenditures.

Owing to its strong cash flow from

operations, VE was able to self-finance

maintenance capital expenditures to a

great extent. The pace of capital expendi-

tures for growth and financial investments

will be tailored to the level of cash flow

from operations after maintenance capital

expenditures, as well as any opportunities

for asset disposals in order to maintain the

level of indebtedness.

Breakdown of capital expenditures and financial investments during 2002

Maintenance capital expenditures

Capital expenditures for growth and financial investments

35.4 %

64.6 %

81



>

CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION

(in millions of euros) 2002 2001 2000Cash flow from operations 2,780 2,455 1,953 (1)

Maintenance capital expenditures (1,323) (1,382) (1,342)

Cash flow from operations before growth and financial investments 1,457 1,073 611

Capital expenditures for growth and financial investments (2,415) (2,070) (2,282)

Disposals 1,771 598 1,696 (2)

Changes in the scope of consolidation (525) (460) (326)

Change in the working capital requirement (464) 437 (315)

Cash flow from operations before financial activities (176) (1,022) (616

Dividends, currency effects and other (161) (484) (54)

Increase in capital 1,554 411 4,125

Net cash flow after the capital increase 1,217 (1,095) 3,456

Net debt at beginning of year (14,283) (13,188) (16,644)

Net debt at end of year 13,066 (14,283) (13188)

(1) excluding tax on the sale of Dalkia to EDF, cash flow from operations came to €2.100 billion.

(2) including tax on the sale of Dalkia to EDF, cash flow from operations came to €1.549 billion.

82



>

Stronger financial structure

Several factors helped to shore up VE’s

financial structure during 2002:

• the capital increase on August 2, 2002

increased its shareholders’ equity by

€1.5 billion;

• the plan to dispose of non-core busi-

nesses exceeded the initial targets, with

disposals totaling over €1.7 billion;

• cash flow from operations advanced 13%

to €2.78 billion.

These three factors contributed to a reduc-

tion in bank borrowings even though

capital expenditures for growth and finan-

cial investments remained at a high level.

In line with its commitments, VE’s net debt,

which is a key factor, was reduced from

€14.3 billion at December 31, 2001 to less

than €13.1 billion at December 31, 2002.

Active financial management

Various efforts to optimize VE’s financial

structure were made during 2002. Action

was taken on several fronts to strengthen its

financial independence and to secure its

bank facilities and greater flexibility. As a

result of these measures, its costs decreased,

with net financial expense dropping from

€798 million in 2001 to €648 million in

2002.

The measures implemented during 2002

included:

• extending the average maturity of its

debt;

• diversifying its investor base through the

issue of a €1 billion bond on February 1,2002

maturing on February 1, 2012 and paying

a fixed interest rate of 5.88%;

• renewing the securitization program intro-

duced at V. Water during 2001 for a period

of five years. The total volumes of recei-

vables securitized at December 31, 2002

stood at €416 million.

BALANCE SHEET

Efforts to

optimize VE’s

financial

structure were

made during

2002

“

”

83



>

Measures were also taken to manage VE’s

net debt.

• 48% of this debt carried a fixed rate at

December 31, 2002 and 52% a variable

rate.This mix allows the company to ben-

efit from the favorable trend in interest

rates,

• 69% of debt at December 31, 2002 was

denominated in euros and 21% in US dol-

lars, with the remainder split between

various other currencies (sterling,

Australian dollars, etc.).

Coupled with the decline in interest rates,

the reduction in debt has helped to improve

VE’s debt coverage ratio. Including the

impact of our financing contracts, the ratio

declined to 3.5x in 2002 from 4.0x in 2001.

DEBT COVERAGE RATIO

2002 2001Net debt to EBITDA* 3.5 4.0

* Definition as per the banking ratio

Breakdown of total gross debt at December 31, 2002

Fixed rate

Variable rate

48%

52%

Breakdown of total gross debt by currency

Euros

US dollar

Other currencies (sterling, Australian dollar, etc.)

69%

21%

10%

84



>

BALANCE SHEET - ASSETS

(in millions of euros) 2002 2001 2000Goodwill 6,152.8 6,795.8 7,056.5

Intangible assets 3,904.9 4,477.0 4,223.4

Tangible assets 14,540.8 14,191.3 12.382.8

Financial assets 1,969.5 1,936.6 1,699.5

Total fixed assets 26,568.0 27,400.7 25,362.2

Total current assets 15,450.4 17,008.6 14,460.8

TOTAL ASSETS 42,018.4 44,409.3 39,823.0

BALANCE SHEET – LIABILITIES

(in millions of euros) 2002 2001 2000Shareholders’ equity (Group’s share) 6,329.6 5,740.0 6,208.3

Minority interests 2,585.2 2,531.1 2,031.1

Subsidies and deferred income 1,413.4 1,483.1 1,270.6

Provisions 2,946.1 3,195.7 3,085.4

Long-term debt 12,913.0 13,134.0 11,468.7

Other long-term liabilities 427.5 496.6 660.9

Long-term capital 26,614.8 26,580.5 24,725.0

Accounts payable 11,607.7 12,939.3 10,854.4

Short-term debt 3,795.9 4,889.5 4,243.6

Total current liabilities 15,403.6 17,828.8 15,098.0

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 42,018.4 44,409.3 39,823.0

85



>

CONSOLIDATED CASH FLOW STATEMENT

2002 2001 2000(in millions of euros) pro forma

Net income 339.2 (2,251.2) 614.8

Depreciation, amortization and provisions 2,396.7 4,684.0 2,070.4

Financial provisions 112.3 53.7 6.0

Disposal and dilution gains/(losses) (105.6) (144.9) (799.0)

Undistributed net earnings of companies accounted for by the equity method (15.2) (14.9) (30.6)

Deferred tax (19.3) 90.2 (6.9)

Minority interests 142.2 131.2 161.4

Deferred costs (70.5) (92.9) (63.4)

Change in working capital requirement excluding deferred tax (1) (463.1) 436.8 (314.7)

Net cash from operating activities 2,316.7 2,892.0 1,638.0

Capital expenditures (2,603.4) (2,878.5) (2,586.2)

Disposals 198.1 205.8 230.7

Financial investments (1,130.7) (1,315.4) (696.5)

Disposals of financial assets 1,573.4 391.9 1,265.8

Repayment of long-term interest-bearing loans (420.9) (98.7) (75.0)

Increase in long-term interest-bearing loans 158.5 18.7 111.1

Change in short-term financial receivables 110.2 159.7 256.7

Purchases/(sales) of marketable securities 6.2 124.1 (43.3)

Net cash from investment activities (2,108.6) (3,392.4) (1,536.7)

Change in short-term financial liabilities (2,031.7) (3.8) 3,293.4

Increase in debt and other long-term liabilities 4,194.1 4,604.4 7,517.2

Repayment of debt and other long-term liabilities (3,870.4) (3,335.9) (13,376.1)

Increase in capital 1,554.1 411.2 2,727.9

Purchase of treasury stock (115.8) (138.4) (44.3)

Dividends (300.0) (299.0) (46.5)

Net cash from financing activities (569.7) 1,238.5 71.6

Cash and cash equivalents at beginning of year 2,089.3 1,528.1 1,389.5

Impact of currency effects and other (92.1) (176.9) (34.3)

Cash and cash equivalents at end of year 1,635.6 2,089.3 1,528.1

(1) including the securitization program in France and the United States amounting to €815 million in 2001 and a reduction in the securitization program of €223 million in France during 2002.

For a more detailed analysis of the management report and 2002 results, please refer to the 2002 document de référence,which is available upon request.

86

GLOSSARY

THE KEY WORDS INENVIRONMENTAL SERVICESBiogasBiogas is emitted during thebiological breakdown oforganic matter in the absenceof oxygen. It contains a highproportion of methane, so hasstrong calorific and energypotential. In our businessactivities, it is produced inlandfills, methane producersand wastewater treatmentsludge digesters. Biogas mustbe captured to avoid pollution(odor and contribution to thegreenhouse effect). It can thenbe recycled because it is anenergy source.

CogenerationCogeneration is a process thatconsists of simultaneouslyproducing heat and electricityfrom a single fuel.The electricity can be used orsold. It is produced by using aturbine or engine, of whichthe exhaust gases are recov-ered and injected back into aheating circuit.

CompostingComposting is one of thetechniques used to treat andrecycle organic waste. It is abiological process in whichthe addition of air acceleratesthe breakdown of organicwaste such as green wasteand the fermentable compo-nent of household waste. Thetechnique produces compostfor use in agriculture.

District heating andcooling systemsSystems comprising a centralgenerating unit and a network

of ducts to supply heating, hotwater and air conditioning topublic- and private-sectorbuildings such as schools, hos-pitals, offices and apartmentblocks.

EffluentEffluent refers most often todomestic and municipal waste-water (effluent is directed intowastewater treatment plants)and, by extension, waste-water generated by industrialprocesses.

LandfillA landfill is a facility wherewaste is stored under maximumsafety conditions and where thebiogas can be recycled intoenergy.

Facilities managementA contract under the terms ofwhich an external operatorassumes responsibility fornon-core services such as main-tenance and security at anindustrial or commercial site.

Industrial outsourcingA contract under the terms ofwhich a single external opera-tor carries out a set of non-core activities previously car-ried out in-house. Examples ofoutsourced activities are themanagement of water, energy,transportation and environ-mental protection.Some outsourcing contractsalso include the transfer ofcompany personnel to sub-sidiaries created by the serviceprovider.

LeachateLiquid effluent that gathers atthe bottom of a landfillcaused by rain water runningthrough the waste. Some ofthe rain water that falls on thewaste evaporates, the restruns through the waste andbecomes contaminated bymineral and organic pollu-tants. This dirty water is calledleachate. As it contains nitro-gen and organic matter,leachate has to be treatedbefore being released into thenatural environment.

Municipal outsourcingAn operating mode for publicservices or services of generalinterest under the control ofpublic authorities and benefit-ing residents who, in mostcases, pay for the servicedirectly to the service provider.The service provider is respon-sible for operating the serviceand, in some cases, makinginvestments.VE’s municipal outsourcingcontracts are primarily for thecollection, treatment anddestruction of household andnon-hazardous waste, waterservice, wastewater service,energy production and distri-bution (heating and hotwater), and public passengertransportation services.

RecyclingThe reintroduction of materi-als recovered from waste intotheir own production cycle(glass, plastics, steel, etc.),totally or partially replacingpreviously unused material.

Recycling transforms wasteinto secondary raw material.

UNITARThe United Nations Institutefor Training and Research.

Waste-to-energy plantsWaste incineration plants thatproduce electricity or steamfor a district heating networkor industrial site.

Waste recyclingBefore being disposed of in alandfill, waste must be sorted,recycled, converted into com-post or incinerated. There arethree types of waste recycling:• Materials recovery, which

aims to give materials con-tained in the waste a secondlife;

• Waste-to-energy, whichproduces electricity or sup-plies a heating network;

• Recycling for agriculture,which consists of trans-forming the fermentablecomponent of organic wasteinto compost.

Wastewater serviceThe collection and treatmentof wastewater and stormwater.


>

GLOSSARY

87

THE KEY WORDS IN FINANCEAmerican DepositaryReceipt (ADR)An ADR is a negotiable certifi-cate issued by a US bankrepresenting a specific numberof shares of a foreign stock trad-ed on the US stock exchange.VE has been traded on theNew York Stock Exchange(NYSE) since October 5, 2001 inthe form of ADRs: one VE ADRis the equivalent of one shareof VE common stock.

Cash flow fromoperationsCash flow from operations isthe internal resources gener-ated through a company’sbusiness operations beforevariations in working capitalneeds. It measures the compa-ny’s ability to continue itsinvestments, service its debtand pay dividends to share-holders.

Earnings per share (EPS)EPS is a company’s net profitdivided by the number of out-standing shares.

Earnings Before Interestand Tax (EBIT)EBIT is an internal indicatorrelating to the income state-ment. In the VE accounts, itrepresents operating incomebefore restructuring costs andgoodwill amortization.

GearingIn accounting, gearing is theratio of a company’s debt netof cash and cash equivalentsto total capital. This is differ-ent from financial gearing,

where the company’s marketcapitalization is used insteadof total capital.

Market capitalizationThe market value of an entirecompany, calculated by multi-plying the number of sharesoutstanding by the price pershare.

Net incomeThis is the net income of all VE companies after minorityinterests.

Payout ratioThe payout ratio is the ratio ofdividends paid by a companyto its net income expressed asa percentage. VE calculatesthis ratio on the basis of itsrecurring net income.

Plan d’Epargne en Actions (PEA)Created in France in 1992, thePEA is an investment accountdesigned to encourage invest-ment in French companies. Itoffers advantages such asexoneration from paying taxon interest or capital gains atthe end of five years. The VEshare is PEA-eligible.

Price/Earnings Ratio (P/E)The P/E is the ratio of theshare price on the stock mar-ket and earnings per share.

Recurring net incomeThis is VE’s net income exclud-ing exceptional items, i.e.,those that do not appear inthe financial statements everyyear. It is calculated as follows:

EBIT plus/(less) the recurringelement of the financial result,after nominal tax, income fromcompanies accounted for bythe equity method, the recur-ring component of goodwillamortization and minorityinterests.

Return On CapitalEmployed (ROCE)This ratio, used by VE, meas-ures the company’s ability toservice the funds provided byits shareholders and lenders.Its precise definition is givenon page 65.

Service à RèglementDifféré (SRD)The SRD (deferred settlement)was created on the Paris stockexchange in September 2000to replace the RèglementMensuel (monthly settlement).The SRD allows settlement of atransaction to be deferred untilfive trading days before theend of the calendar month.TheVE share is SRD-eligible.

Subscription warrantA certificate, usually issuedwith a bond or preferred stock,entitling the holder to buy aspecific amount of securitiesat a specific price.On December 17, 2001, VE allo-cated subscription warrants,free of charge, to all its share-holders. The conditions werethat each share owned enti-tled the holder to onesubscription warrant and thatseven subscription warrantsentitled the holder to buy oneVE share at the price of €55 at

any time before 2006. The war-rants are negotiable and listedon the Euronext Paris PremierMarché.

Tax credit (avoir fiscal)This is a credit granted by theFrench government thatallows shareholders to benefitfrom tax deductions.The net dividend of Frenchshares paid to individuals resi-dent in France and somecompanies is currently com-bined with a tax credit of 50%.For companies in France thatdo not benefit from the “par-ent company” tax régime, thetax credit is 10%. In principle,people or companies not resi-dent in France are not eligiblefor a tax credit unless coveredby more favorable provisionsarising from certain treaties.


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FOR FURTHER INFORMATION


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Investor and financial analyst contactsNathalie Pinon Director of Investor RelationsVeolia Environnement36–38 avenue Kléber, 75116 Paris, FranceTel: +33 1 71 75 01 67 - Fax: +33 1 71 75 10 12E-mail: [email protected]

United States contact:Brian SullivanTel: +1 401 737 41 00E-mail: [email protected]

Shareholder contacts Telephone:Free phone (from fixed line in France): 0 805 800 000

Mail:Veolia Environnement Shareholder Department36–38 avenue Kléber, 75116 Paris, FranceE-mail: [email protected]

VE Web sitesGeneral:For general information about the companywww.veoliaenvironnement.com

Finance:For financial information (in English)www.veoliaenvironnement-finance.com

Shareholders:For shareholder information (in French)www.actionnaires.veoliaenvironnement.com

Sustainable development:For information about the company’s sustainable development policywww.d.durable.veoliaenvironnement.com

Human resources:For job applicationswww.veoliaenvironnement-rh.com

The company’s values

A message from the Chairman of the Management Board

2002 key figures

Profile

Historical overview: 150 years of serving the environment


Corporate governance

Stock market and shareholders

An international company

Customers:

OUR BUSINESSES

Waste management

Energy services

Transportation

FCC


Principles and actions

Value creation

Research and innovation

Environmental responsibility

Social responsibility

Risk management

CONTENTS

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15

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20

24

30

Municipal customers30

Industrial and tertiary customers34

42

48

52

56

60

62

62

65

38

66

68

74

82

Key words86

For further information This document is printed on Belair Mat Satin ecological paper.

In addition to this Annual Report, VE has published the following documents for its shareholders:

- a document de référence approved by the COB- a 20 F registered with the SEC- a sustainable development report.

These documents can be sent on request or accessed on the following Web sites:- Corporate Web site: www.veoliaenvironnement.com- Shareholders’Web site: www.veoliaenvironnement-finance.com- Financial Web site: www.actionnaires.veoliaenvironnement.com- The VE sustainable development Web site: www.d.durable.veoliaenvironnement.com

This document is not the document de référence approved by the COB (the French securities and exchange commission).

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FINANCIAL RESULTS AND MANAGEMENT REPORT SUMMARY76

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EA Water44 >

VE registered office:36-38 avenue KléberF-75116 ParisTel: +33 1 71 75 00 00

www.veoliaenvironnement.com

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2002 Annual Report

Veolia Environnement Annual Report 2002

Documents

Transcript of Veolia Environnement Annual Report 2002