Florence March, 19th 2012 European Regulation Forum: View from Operator Dr. Axel Sondermann, Veolia Verkehr Regio GmbH / Veolia Transdev Group Veolia Transdev as very international operator 17.9 Revenue breakdown by geography Others Australia (€bn – 2010/2011) Asia 13.8 North America North/ East Europe South Europe UK + Ireland Germany 8.1 7.5 Benelux 6.3 France 5.2 4.1 3.5 2.9 2.6 2.5 2.5 1.8 Sources: annual reports Veolia Transdev as largest non-historical operator 20 2010-2011 Revenue of main international operators (€bn) 18 Breakdown by main businesses €bn 15 13.8 10 8 7.5 6.3 5.2 5 4.1 3.5 2.9 2.6 2.5 2.5 1.8 0 Bus & Coach Regional Rail / Metro Long Distance Rail Non transportation / other revenue Sources: annual reports - SNCF: only passenger transportation revenue -Trenitalia: incl.Arriva Germany revenue - DB Arriva: only passenger transportation revenue -RATP: incl VTD assets (430m€) International rail operators Rail Revenues 2010-2011 €bn 15 15 (including regional & long distance rail) 2,5 10.6 10 1 6.4 12,5 0,5 5 9,6 3.5 2.6 5,9 1 2.2 1.8 1 1.2 1.1 2,5 2,7 0.9 0.8 1,8 1,2 1,2 1,1 0,9 0,8 0 SNCF/Keolis DB Arriva Trenitalia NS Abellio FirstGroup MTRC Go Ahead Stagecoach Keolis VTD NX Keolis integrated Pro forma revenue at 56% incl. 100% Arriva Domestic International Source : Companies last annual reports Our rail market positioning Market size and 3,6 7.8 0.2 0.7 0.7 0.8 0.3 100% growth and VTD positioning 50% 0,7 . 2010 open market 0.5 0,3? 0.1 0.3 0% 50% 100% addressed by VTD = Germany Sweden NZ France UK/Ireland 14 €bn USA Asian (50M€) Benelux metros . Est. 2011 VTD revenue: 0.9 €bn 2010 open market VTD Est. 2011 revenue Source: VTD market review 2011 Source: VTD market review 2011 Regional and suburban rail market players Train kilometres (in million) as of 2011 operated by different groups: Our competitors are regional or international, publicly owned 0 100 200 300 400 500 600 487,0 Veolia We are #2 rail operator in Germany: 34,6 Transdev “The biggest of the small” Netineria Trenitalia together with the French fund Cube acquired 19,2 (FS Trenitalia) former German Arriva activities in 2011 Joint venture of Hamburger Hochbahn (51%) and INPP BeNEX 13,6 (49%, London based fund) Albtalbahn is the public regional operator of the tram-train- AVG 13,5 system in Karlsruhe region Operating mainly in Northrhine-Westfalia under “Eurobahn” Keolis 12,1 brand Business line: Regional rail Germany Operators 2010 market share on open market – in % of revenue Acceleration of tendering process: 5.6 bn€ to be tendered on the 2011-2017 VTD Others period 16% 22% Mix (50/50) of net and gross contracts VTD leadership position with 16% Benex market share (1st private operator) 10% Rolling stock of competitors has been mainly financed through operating DB leases so far Netinera Regio 12% 40% Appearing trend of collectivities (Based on Arriva 2009 revenue) supporting the fleet investment by transfering public creditworthiness (issue: vehicles increase debt level of operators and of PTAs) Source: VTD market review 2011 A strong growth development in Germany – so far 2004 2007 2010 2008 • Bayerische Sales 2010 Important elements Regiobahn 681 M€ (3 M km) Sales 2009 2008 589 M€ 2006 Sales 2007 • MittelrheinBahn • Emscher- 514 M€ (2.6 M km) Münsterland (2 M km) 2010 2008 Sales 2004 • Regio- 2007 • Bundeswehr S-Bahn (sub-contracted) 335 M€ • Märkische- Bremen (5 M Regiobahn km) 2006 2009 (1 M km) • Frankfurt Los A • Niers-Rhein- 2010 (3 M km) Emscher 2004 • Frankfurt Los E Niebüll • Itzehoe (3 M km) (3 M km) (1 M km) 1 M km • Mitteldeutsche • Sinsheim 2005 • Husum Regiobahn (1 M km) • Harz-Elbe (1 M km) (3 M km) • Fraport (3 M km) • Waren (0.2 M km) 2009 • Netz West (3 M km) • Ostholstein • Acquisition of Verkehrsbetriebe (4 M km) • Pforzheim (2 M km) (5 M km) Westfalen-Süd 8 • PRESENTATION VEOLIA VERKEHR An important fleet Vehicles - 288 railcars (electric and diesel) - 24 train sets (with electric and diesel locomotives) - 1,500 buses - 19 trams Railway network - 2,820 km operated lines - 34.6 million train-km 9 • PRESENTATION VEOLIA VERKEHR Veolia Transdev in Germany developing with market opening of regional rail Veolia Transdev Operations Degree of market opening per PTA NVRS 80-85% Mittelrhein Degree of market opening 81% à 100% 61% à 80% 31% à 60% 0% à 30% BEG 45-50% VRS More than 90-95% planned NVBW 55-60% Less than planned Rosenheim Source : Wettbewerber Report Eisenbahn 2010/2011 10 • PRESENTATION VEOLIA VERKEHR Efficiency increase after market opening (in Euro/train-km) 10,00 9,50 € € 1,41 € 2,15 € 2,47 € 3,17 € 7,50 € Gain 4,48 € 15% Gain Gain 23% 26% Gain 33% 5,00 € Gain 47% 2,50 € 0 € DBDB averagegemittelt RegionalRE RegionalRE/RB RegionalRB S-BahnenCom- Averagedurchn. express express/regional muter Einsparunggain Source : Wettbewerber Report Eisenbahn 2009/2010 11 • PRESENTATION VEOLIA VERKEHR Passenger increase after market opening Development of passengers since market opening 160 150 Extension of global 140 market – further 130 Total growth expected Activité GL 120 although population is Aérien intérieur decreasing 110 TER Regional rail is 100 booming 90 Passagers transportéd (1994 = 100) = (1994 transportéd Passagers Regional Stagnation of long Long- 80 distance distance (apart from change of services into regional rail année services) Quelle: BMVBS, Verkehr in Zahlen 2007/2008 Ridership increase after competition or re- launch Nbr of passengers (Index = 100) • Local marketing 300 300 • Own distribution 200 200 channels 100 100 100 100 • New services • Intermodal hubs Lausitz- NWB1) RBE1) BOB2) bahn • New vehicles 1) Development 2 years after traffic start 2) 1996-2005 13 • PRESENTATION VEOLIA VERKEHR Regional and suburban rail not really tendered yet • DB still has long-lasting (~10-15 year) contracts, expiring until 2020. However, many already expire until 2015 • Typical operations in the still closed market segment: - Suburban RER-style systems in Berlin, Hamburg, Munich - Regional express services with 10-20 year-old double-deck coaches - Regional express services with 10-20 year-old tilting trains (high- end DMU) - Line services with other ~10-year-old single deck EMU or DMU • Characteristics of old closed-market contracts of DB - Offensive negotiation position for DB, PTA in defensive position - High subsidy level, very high margins (operational profit > 500 M€ p.a., margin >10%) - Until year 2000, many PTA also have funded rolling stock investments (with 50%-75%) - Net contracts, commercial risk is borne by DB - Limited fleet specification, high flexibility to move around trains within DB fleet - Few other contractual obligations (penalty schemes etc.) • Only ~55% of market has been opened so far, ~45% are still closed • Closed market operated by DB: revenue still ~4.0 BN€ Regional and suburban rail market opening Tender volume 2003-2018 (past, recent and expected volume in train km) PSC = Public Service Contracts ! We expect open market to raise from ~55% to 100% until 2020. Decreasing number of participants in tenders related to size of tenders <0,5 m 0,5 m à 1 m à 1,5 m à 2,0 m à 3,0 m à 4,0 m à 5,0 m et train- < 1,0 m < 1,5 m < 2 m < 3 m < 4 m < 5 m plus km train-km train-km train-km train-km train-km train-km train-km Source : Wettbewerber Report Eisenbahn 2009/2010 16 • PRESENTATION VEOLIA VERKEHR Competition level recently on decline Why are there only a very few private operators left? – What can be done to facilitate their activities? • High capital intensity • Better financing models so that not all vehicles have to be put in • Incongruency between service the operator‘s balance sheet contract and life time of rail fleet (residual values) • Balanced contract chances and risks • Increasingly operational risks (e.g. delayed certification of new • Better revenues sharing and – vehicles, insufficient grip on especially – clearing systems to revenues, …) ensure liquidity • Non-balanced contracts (e.g. • No penalisation for warranties for non-caused infrastructure-related issues damages) • Access issues in specific areas in which historic operator defends competitive advantages (energy, sales, used vehicles) 18 • PRESENTATION VEOLIA VERKEHR Are public investments, particularly in infrastructure at risk? – What can be done to ensure financing? • Infrastructure costs • Mid-/long-term financing contracts for increase steadily infrastructure with effective quality monitoring (CAGR: 2% p.a.) • Assymetric infrastructure regulation while financing is at (exemption of infrastructure „outside risk competition“) - Expected • Price cap-regulation to increase efficiency of review of funds dominant state-owned infrastructure operator to be used for ordering • Ideally ownership unbundling of operations regional train and infrastructure of dominant railway services (2014) undertakings – at least organisational and financial unbundling together with effective - limited length of regulation financing contract for • Demand-oriented prioritisation of infrastructure infrastructure projects maintenance • Tendering of infrastructure management – not („LuFV“) only maintenance but also operations 19 • PRESENTATION VEOLIA VERKEHR What can be done in terms of vehicle financing solutions to promote competition again? • Privately-run companies have – • The EU should still have an interest in all compared to state-owned railways – member states that railway competition a less competitive position in terms of is also attractive for private players debt and financing costs • Private capital needs to be attracted in • So far, competitors