Veolia to Leave 37 Countries as Loss Spurs Quicker Revamp
Veolia Environnement SA (VIE) will stop operations in at least 37 countries as Chairman Antoine Frerot accelerates a restructuring plan to restore profit at the world’s largest water company.
The Paris-based utility, which supplies water to more than 100 million people worldwide, said it swung to a net loss of 67.2 million euros ($95.9 million) in the first half from a profit of 374.2 million euros a year earlier after writedowns on operations in Italy, Morocco and the U.S. Operating profit was less than analysts expected.
“I don’t want to push back the bad news, but to face it now,” Frerot, who is also chief executive officer, said today at a presentation in Paris. “We are a global company, but we don’t need to be everywhere.” The utility will operate in fewer than 40 countries by the end of 2013, he said.
Veolia and its competitor Suez Environnement SA saw demand for waste collection and water treatment slump in 2009 as carmakers and steel producers closed factories to survive the economic slowdown. Frerot, 53, who took over as chairman seven months ago, announced a management shake-up and said the company will sell at least 1.3 billion euros of assets this year.
The shares plunged in Paris after Frerot said it was too early to predict the recurring level of net income that will be the basis of dividend payments. The stock closed down 19 percent at 11.60 euros, giving it a market capitalization of 6 billion euros. That’s smaller than rival Suez Environnement SA, which reported less than half the first-half revenue of Veolia.
“It will likely mean a significant decrease in the dividend,” Eric Lopez, analyst at Bank of America Corp.’s Merrill Lynch unit, said today.
The restructuring marks the end of the global expansion started by Frerot’s predecessor Henri Proglio, who’s now CEO at Electricite de France SA. Veolia will exit the transport business in Morocco, environmental services in Egypt, marine services in the U.S. and will proceed with “significant disengagements” in southern Europe including a review of operations in Italy, where local management has already been replaced, executives said today.
The utility is planning to hold an investor day in early December to announce details about which countries it will exit and how, Frerot said today.
“Veolia is taking its problems in hand but now it has to figure out the mid-term consequences,” Louis Boujard, a Paris- based analyst at Aurel-BGC, said by telephone.
Veolia’s net loss was its first since the second half of 2008. The company said adjusted operating income will “decline slightly” this year compared with a previous outlook for growth of 4 percent to 8 percent. The utility also said it wouldn’t reach a previous goal of increasing net income in 2011 while keeping a cost-savings target of at least 250 million euros this year.
The company said it would achieve a “minimum” of 150 million euros in cost-savings in 2013 and 250 million euros to 300 million euros annually by 2015 in addition to an existing plan for 250 million euros annually. Savings of 250 million euros a year would compensate for pressure on prices from suppliers and the rise in costs of materials so more trimming was needed to gain efficiency, Frerot said today.
Veolia said writedowns and impairments for the six months were 838 million euros. It said it had identified an “incidence of accounting fraud” over the years 2007 to 2010 in the U.S. at its Marine Services business that was “not significant” and had no impact on the latest period. The utility booked write- downs of 476 million euros for Italy and 152 million euros for TNAI energy services in the U.S.
Net financial debt fell to 14.8 billion euros from 15.2 billion euros at the end of the year. There’s no need for the company to raise capital, Frerot said, adding that the debt is “sustainable.”
Chief Operating Officer Denis Gasquet will lead the company’s restructuring effort, stepping down as CEO of the environmental services division, where he’ll be replaced by Jerome Le Conte.
Veolia spent about 4 billion euros in 2007 and 2008 on acquisitions including German trash-handler Sulo Group, TMT, the waste-management unit of Italy’s Termomeccanica Ecologia and Thermal North America Inc., bought for an enterprise value of $788 million. The utility wrote down the value of the German and Italian businesses in 2009 and the U.S. business in the latest period.
In addition to supplying water, Veolia handles about 63 million tons of waste and provides public transportation in 28 countries and supplies energy in Europe and the U.S.
To contact the reporter on this story: Tara Patel in Paris at firstname.lastname@example.org
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