The ratings on Veolia Environnement S.A. (VE) reflect Standard&Poor's Ratings Services' view of the group's leading positions worldwide in water distribution and waste water treatment, which represented 49% of operating income in first-half 2010; its significant share of stable and recurrent revenues under long-term municipal contracts; and its wide diversity by business, contract, and geography. Also supportive of the ratings is VE's recent shift toward a less capital-intensive and more credit-protective strategy. These strengths are, however, offset by pressure on profitability, volatility of earnings from the group's large and cyclical waste business (21% of operating income in first-half 2010), and VE's limited ability to generate free cash flow before disposals, despite cuts in capital expenditures (capex). As a
