Veolia Environnement SA, Europe’s biggest water company, said profit was almost wiped out in the first half because of impairments on waste services in Germany.
Net income slumped to 3.6 million euros ($4.8 million) from 162 million euros a year earlier, the Paris-based company said today in a statement. Adjusted operating income rose 28 percent to 539 million euros.
“A strong deterioration in the German market” led to the depreciation, Chief Financial Officer Pierre-Francois Riolacci said on a conference call. Waste volumes fell most in Germany, while competition for municipal service contracts rose, he said.
Veolia, which owns German trash-handler Sulo Group, has suffered a decline in prices for recycled materials such as paper and metals, hurting its waste-management division. Since former Chief Executive Officer Henri Proglio’s expansion spree around the world, current CEO Antoine Frerot has narrowed the company’s global reach to reduce debt and improve profitability.
Waste volumes shrank 3.5 percent in the first quarter and increased in the second, resulting in a 1.1 percent decline for the first half, the utility said in a presentation.
“We had a difficult first quarter but the situation stabilized in the second,” Riolacci said. “The economy in Europe isn’t expected to pick up; it won’t decline either.”
Stock performance
Water and waste utilities in Europe have seen their market values drop as factories halt to survive the slowdown, curbing demand for industrial garbage collection. Veolia has dropped 84 percent in Paris trading since its 2007 high. The stock rose 3.4 percent to close at 10.62 euros today.
“The waste division showed a significant sequential improvement,” Julien Desmaretz, analyst at Bryan, Garnier & Co who has a buy rating on the shares, wrote in a note. “Cost-cutting is filtering through.”
Net income was “impacted by goodwill impairments in the Environmental Services division inGermany,” the company said in the statement. Veolia maintained full-year earnings targets.
The company has a goal to sell 6 billion euros of assets in 2012 and 2013, and plans a dividend of 70 euro cents a share for each year. It intends to lower costs by 170 million euros this year as part of a plan to save 750 million euros by 2015.
“Cost-cutting is moving ahead as we forecast,” Frerot said on the call. Cost reductions were 74 million euros in the first half.
The utility has started talks to sell its stake in Germany’s Berlinwasser to the Berlin state and may agree on a deal “within months,” Frerot said. The utility also plans to close an agreement for asset sales in Morocco.
Borrowings decline
Net financial debt was 10 billion euros at the end of June compared with a restated 10.8 billion euros at the end of December. Veolia has said it expects net borrowing of 8 billion euros to 9 billion euros by the end of this year.
Frerot is increasing Veolia’s reliance on industrial contracts and focusing on “high-growth” economies such as China to counter weakening demand in Europe. Since the start of the year he has unveiled plans to expand in nuclear dismantling, hazardous-waste cleanup and shale-drilling water treatment.
Proglio, who now heads Electricite de France SA, took the water utility into 77 countries. The company intends to scale back to about 40 by year-end from 48 at the close of 2012.
