Veolia Rises Most in 6 Months on Forecast, CEO’s Renewal

Veolia Environnement SA (VIE), Europe’s largest water utility, advanced the most in six months in Paris trading after forecasting higher profit this year and proposing the renewal of Chief Executive Officer Antoine Frerot’s term.

Veolia rose 8.2 percent, its biggest gain since Aug. 21, to close at 13.80 euros.

“The 2014 fiscal year will mark a return to growth in our results,” Frerot said today after the company reported an annual net loss. Veolia expects “revenue growth, around 10 percent growth in adjusted operating cash flow and significant growth in adjusted operating income and adjusted net income.”

The board agreed yesterday to propose renewing Frerot’s mandate at the annual general meeting. The CEO has sought to cut debt by narrowing Veolia’s global reach while concentrating on “high-growth” economies. He has unveiled plans to expand in nuclear dismantling, hazardous-waste cleanup, shale-drilling water-treatment and services for the food-processing industry.

The board’s decision is “positive” given that the restructuring plan is closely associated with Frerot, BNP Paribas SA said in a note. It “may quash rumors of attempts to replace him.”

The CEO came under pressure this month as shareholder Groupe Industriel Marcel Dassault SAS sought to have him removed, according to a person with knowledge of the situation.

‘Dramatic’ Change

“It would have been dramatic for a company that is going through such a big transformation to change the pilot mid-flight,” Veolia Chief Financial Officer Philippe Capron said at a press conference in Paris. Renewing Frerot’s mandate is “good news for our shareholders.”

Frerot, who survived a previous challenge to his leadership in February 2012, also used aviation imagery to describe his latest ordeal.

“The company knows where I want to bring it. The strategy wasn’t called into question,” Frerot told the news conference. “If you cut fuel or change pilots on a plane gaining altitude, it will nosedive.”

Net financial debt was 8.2 billion euros ($11.2 billion) at the end of 2013, down from 9.6 billion euros in September, Veolia said today in a statement.

The French company has sold assets as it focuses more on faster-growing economies such as China while seeking more industrial contracts to cut reliance on municipal deals at home. Divestments “continued at a steady pace” in 2013 to reach 1.25 billion euros, it said today.

Asset sales this year won’t be “significant” because debt levels are now sustainable, Frerot said at the briefing. The utility has narrowed its geographic focus to “about 45 countries” from more than 70 previously.

Net Loss

The company posted an annual net loss of 135 million euros compared with restated net income of 404 million euros a year earlier after taking provisions in Germany and treating less waste. Economic stagnation in Europe has curbed manufacturing, reducing trash. French competitor Suez Environnement (SEV) said last week that factory output “may have hit bottom.”

Waste-handling volumes in Europe may drop about 1.5 percent this year, the same as in the second half of 2013, Frerot said.

Adjusted operating income advanced 17 percent to 922 million euros in 2013 while adjusted net income almost quadrupled to 223 million euros, according to today’s statement.

Cost Cuts

Veolia previously announced a plan to reduce expenses by 170 million euros this year as part of a 750 million-euro cost-saving program through 2015. Cost-cuts were 178 million last year, it said today. The Paris-based company proposed a dividend in cash or shares of 70 euro cents for 2014, payable in 2015.

Frerot reiterated today that the utility won’t put any more money into money-losing ferry operator SNCM, whose fate is blocking Veolia’s plan to withdraw from mass transit operator Transdev.

The chief executive said SNCM’s future may best be decided in French commercial court where it could be shielded from an order by the European Commission to repay 440 million euros in subsidies.

“Controlled by a judge, it would no longer be our problem and won’t have an impact on our accounts,” Capron said.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Amanda Jordan, Tony Barrett

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