Veolia Targets ‘High Growth’ China, Mideast to Boost Profit

Veolia Environnement SA, the biggest water company, will focus on “high growth” opportunities offered by China and the Middle East as part of a plan to scale back its geographic reach to 40 nations.

The utility reiterated a goal to cut debt through 5 billion euros ($6.7 billion) of asset sales by the end of the year, of which 3.5 billion euros was raised in 2012. The shares rose to a four-month high in Paris trading on confirmation of the target.

“We can’t be everywhere and do everything,” Chief Executive Officer Antoine Frerot told a press conference today in Paris. He said he wanted to “build a new” utility.

Frerot is more than a year into what he said would be a two-year “profound transformation” of the utility to boost profit after former CEO Henri Proglio extended Veolia’s reach to 77 nations. Frerot changed top management and shuffled the board after fending off a bid to oust him last year.

The shares rose as much as 4.2 percent to 9.49 euros in Paris trading, the highest since September. They traded 2.9 percent higher at 9.375 euros as of 1:05 p.m. local time.

An attempt to forge closer ties with Suez Environnement in September failed after encountering difficulties in France that couldn’t be overcome, Frerot said. The talks are now in the past, he said. The CEO said in an interview with BFM radio last week that a merger with its smaller rival “makes sense.”

Industrial Clients

Within five years, Veolia will earn half its revenue from industrial clients compared with 35 percent now, Frerot said. The utility also wants to generate half of sales from markets in Asia, Australia and Latin America.

Veolia is contending with economic stagnation in France, where it generated almost 40 percent of revenue in 2011. That’s combined with a move by cities such as Rennes to take over water contracts from the private sector.

Most French water contracts will come up for renewal by 2015, Frerot said. “If we didn’t intervene in our productivity we would lose a good half of our margins,” he said. By boosting productivity, Veolia wants to “regain two thirds of this loss.”

The global water treatment and distribution market is worth about 400 billion euros of which 10 percent is currently in the hands of private companies, according to Veolia. Cost cuts of 470 million euros are planned by 2015.

The company said it completed about 10 “significant” asset sale agreements by the end of last year. Assets for sale have been valued at higher levels than expected, it said.

The utility is sticking to a goal to lower its stake in the Transdev transport unit to 20 percent within about two years.

Frerot said he’s seeking to win shale energy contracts for water treatment and increase revenue from energy efficiency.

The utility is targeting annual sales growth in excess of 3 percent from 2014 and an average increase in adjusted operating cash flow of more than 5 percent. Frerot wants to cut borrowing to less than 12 billion euros by the end of 2013 and has already reduced the dividend.

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