Veolia Profit Surges as Water, Waste Improves on Cost Cuts

Aug 28, 2014 3:56 am ET

(Updates with analyst comment in fourth paragraph.)

Aug. 28 (Bloomberg) -- Veolia Environnement SA, Europe’s biggest water company, reported a surge in first-half profit after an improvement in water and waste operations countered a decline in demand for energy services.

Net income rose to 151.1 million euros ($200 million) from a restated 800,000 euros a year earlier, when impairments on waste services in Germany almost wiped out profit, the Paris- based company said today in a statement. Adjusted net income of 187 million euros beat the 162 million-euro average of five analyst estimates compiled by Bloomberg.

Chief Executive Officer Antoine Frerot, who survived a leadership challenge this year, is seeking to cut debt, boost profitability on municipal contracts and move into new markets such as water-treatment works for the mining, oil and food industries. Having pledged to increase Veolia’s reliance on industrial contracts, narrow its global spread and focus on high growth economies such as China and the Middle East, Frerot said today Veolia will maintain its 2014 profit targets.

Financial targets for the year are “within reach” due partly to cost cuts, Raymond James Euro Equities analyst Emmanuel Retif said today in a note to clients.

Veolia is sticking to its plan to reduce expenses by 750 million euros through next year, Frerot said today on a conference call. The company will save about 200 million euros this year and a similar amount next year, he said. Cost-cuts were 350 million euros at the end of 2013.

‘Transformation Reality’

The “transformation of Veolia has become reality,” Frerot said on the conference call.

Veolia shares gained as much as 1.7 percent to 14.10 euros and traded at 13.97 euros as of 9:15 a.m. in Paris. The stock has gained 17 percent this year, compared with a 2.1 percent increase in the benchmark CAC 40 index.

“Our results improved significantly in the second quarter,” Frerot said in the earnings statement. “The unfavorable first-quarter weather impacts have already been absorbed.”

Veolia’s sales from energy services fell 10 percent in the first six months after demand for heating dropped due to an “exceptionally mild winter,” according to the company. Waste- handling volumes rose 1.7 percent in the period, although the pace of improvement dropped off in the second quarter after a 2.8 percent gain in the first quarter, Chief Financial Officer Philippe Capron said on the call.

“In some countries, notably in western Europe, there was a deceleration but these numbers are still favorable,” he said.

Lower Debt

Veolia should lower debt to about 8 billion euros by the end of 2014, Capron said. Net financial debt was 8.65 billion euros at the end of June, compared with 8.2 billion euros at the end of 2013, according to today’s statement.

Adjusted operating cash flow is expected to increase about 10 percent and adjusted operating income and adjusted net income should see “significant growth,” the company said. From 2015, the utility has targeted organic revenue growth of more than 3 percent a year and adjusted operating cash flow growth of more than 5 percent a year.

Suez Environnement, Veolia’s main European rival, reported first-half profit more than doubled on an asset sale and said acquisitions are part of its strategy.