Veolia Jumps in Paris on Return to Profit, Reduction in Debt

Veolia Environnement SA, the biggest water company, rose to an eight-month high in Paris after profit revived in 2012 and it reported progress in reducing debt.

Veolia gained as much as 8.3 percent to 10.305 euros, the highest intraday price since June 29. The return to profit shows Chief Executive Officer Antoine Frerot’s transformation of the utility is bearing fruit, the company said in a statement.

Net income was 394 million euros ($517 million) in 2012, compared with a loss of 490 million euros a year earlier, according to today’s statement. That beat the 242 million-euro average estimate of nine analysts surveyed by Bloomberg. The utility has cut debt more quickly than expected, it said.

The CEO, more than a year into a two-year plan to curtail debt and scale back Veolia’s geographic reach, has changed top managers and shuffled the board to weather an industry slowdown.

Veolia rose 2.5 percent to 9.746 euros by 11:25 a.m. in Paris on volume more than twice the three-month daily average.

Net financial debt totaled 11.3 billion euros at the end of December, down from 14.7 billion euros a year earlier. Veolia sees net borrowing at no more than 9 billion euros by year-end.

“We are on the right path,” Frerot said on a call. “A lot has been done, but there is still a lot to be done.”

Veolia will sell small and mid-sized assets in 2013, Chief Financial Officer Pierre-Francois Riolacci said on the call. It sold 3.7 billion euros of assets in 2012 and expects that figure to expand to 6 billion euros with this year’s divestments.

Reduce Reach

Former CEO Henri Proglio’s expansion spree, begun in 2006, took the Paris-based company to 77 nations. The utility, which now plans to narrow its reach to about 40 countries, reduced the number to 48 by the end of last year.

Operating income rose to 1.1 billion euros last year from a restated 829.1 million euros and sales gained 3 percent to 29.4 billion euros. Veolia will pay a dividend of 70 euro cents in cash or shares for 2012 and plans to keep that payout this year.

“This should be proof of management’s confidence in reaching its deleveraging and cost savings targets,” Bryan, Garnier & Co analyst Julien Desmaretz wrote in a report today on the dividend. He maintained his buy recommendation on the shares and said the utility’s operating performance was “solid.”

Waste-handling volumes shrank as a slowing European economy curbed demand and the “trend will continue” this year, said Riolacci. Volumes fell “significantly” in Germany and the U.K. in the last half and were down as much as 3 percent in January.

Veolia will unveil new cost-saving targets in May and has started cutting jobs in France through voluntary departures and not replacing employees who leave, according to Chief Operating Officer Francois Bertreau. He was charged in November with cutting costs and reorganizing operations.

In addition to focusing more heavily on emerging markets, the utility will tackle the “most complex” environmental problems such as cleaning up and dismantling nuclear sites or treating water from shale-energy drilling, Frerot said.