Veolia Environnement SA, the world’s biggest water utility, will sell 5 billion euros ($6.7 billion) of assets to cut debt as it exits the mass-transit business to focus on water, waste and energy services.
Veolia, which is outlining a turnaround plan at an investor day, will sell regulated water assets in the U.K., solid waste operations in the U.S., and quit the Transdev transport business. It also proposed a lower dividend.
The asset sales are “going to drive a profound transformation of our company,” Chief Executive Officer Antoine Frerot said. “I am giving myself two years to carry it out.”
Veolia’s credit outlook was lowered by Fitch Ratings last month after the utility twice cut profit forecasts. Fitch said a “softer” economy could hurt the waste division, risking a repeat of the slump in demand Veolia saw in 2009 when carmakers and steel producers shut factories to weather the recession.
“The plan will reassure to some extent but the market wants to see proof that it will be carried out,” said Chicuang Dang, an analyst at KBL Richelieu in Paris. “The road will be a long one because the effects of cost-cutting and asset sales won’t be felt right away. This was Veolia’s last chance.”
Veolia rose as much as 4.5 percent in Paris trading before giving up gains and trading down 0.7 percent at 9.455 euros as of 2:59 p.m. local time. The shares have slumped 57 percent in the year to date.
The asset sales are “higher than the anticipated” 3 billion euros, said Julien Desmaretz, a Paris-based analyst at Bryan, Gernier & Co.
Veolia will shrink its “geographic footprint” to about 40 countries from 77 in a bid to lower debt to less than 12 billion euros by the end of 2013. Net financial debt was 15 billion euros at the end of September.
Veolia said it plans to focus on central and Eastern Europe, China, France, waste operations in the U.K. and energy services in the U.S.
The utility proposed cutting the dividend to 70 euro cents a share in 2012 and 2013, compared with 1.21 euros for 2010.
It raised cost-cutting targets and confirmed that adjusted operating income will “decline” from last year.
“The amount of this reduction may be similar to that reported for the nine months ending September, 2011,” the company said.
The net effect of cost-cutting on operating income will be 20 million euros next year, 120 million euros in 2013, 220 million euros in 2014 and 420 million euros in 2015, Veolia said in a presentation.
Veolia supplies water to more than 100 million people and handles about 63 million tons of waste.
Transdev was created after Veolia and French state-owned bank Caisse des Depots et Consignations agreed to merge their transport units last year.
“We will look for new shareholders for our transport business,” Frerot said, since Transdev would have competed for investment “with other activities that we think are more important for the future.”
The French water business faces the prospect of lower profitability and the threat of municipalities taking over water treatment operations, Veolia said, while the waste business is increasingly exposed to the industrial output.
The company lost half its market value, and the cost of insuring it against default reached a record, after saying in July that it wouldn’t meet an earnings target.
The restructuring marks the end of the global expansion started by Frerot’s predecessor Henri Proglio, who became chairman and CEO of Electricite de France SA in 2009 while remaining chairman of Veolia until last December. Proglio spent about 4 billion euros on acquisitions in 2007 and 2008, pushing the utility’s operations into 77 countries from Argentina to South Korea.
“We are preparing the company for difficult times,” Frerot said.