August 5, 2013 / 7:19 AM / 4 years ago

UPDATE 2-Veolia sees Europe stabilising, but China a worry

* European business conditions stabilising at start of H2

* Firm worries China slowdown could hit raw materials prices

* German environmental services, restructuring hit net profit

* Shares up 5 pct, on uptrend since hitting 2012 lows (Adds company, analyst comments, detail, background, shares)

By Geert De Clercq

PARIS, Aug 5 (Reuters) - French water and waste group Veolia Environnement said its main European markets were stabilising, though it was worried a slowdown in Chinese economic growth could hit demand for the paper, cardboard and metals it recycles.

The world’s largest private supplier of drinking water said on Monday it was starting to see new orders in its water business, which serves around 100 million people across the globe, for the first time since the financial crisis.

It also reported signs of stabilisation in its waste business, which is highly sensitive to economic swings and has been hit hard by recession in Europe’s manufacturing industry.

At 1320 GMT, Veolia shares were up 4.8 percent at 10.76 euros, continuing a recovery from a decade low of 7.4 euros in November, though still far off their 2007 high of 65.65 euros.

“While we do not expect a rebound of business activity, we do not expect a further slowdown either,” said Chief Financial Officer Pierre-François Riolacci.

Suez Environnement, the world’s No. 2 water and waste group behind Veolia, said last month it also expected a slight improvement in second-half waste volumes.

Riolacci added, however, that Veolia was closely monitoring slowing growth in China, where it sells many of the products it recycles in Europe. “It could impact us directly, especially via raw materials prices,” he said.

Veolia, which employs about 230,000 staff and treats waste water for around 71 million people, said first-half consolidated net profit from continuing operations stood at 105 million euros ($140 million), versus a 21 million euro loss the year before.

But net attributable profit plunged to 4 million euros from 162 million, hit by a 49 million euro goodwill impairment on German environmental services unit Sulo, 17 million of charges for its voluntary redundancy plan and 43 million of costs associated with a bond buyback.

Riolacci said German waste recycling volumes were down significantly and competition had increased as municipalities increasingly took over waste collection themselves.

Former chief executive Henri Proglio acquired Sulo in 2007 for 1.45 billion euros, and Veolia had already booked a 400 million impairment on it in 2009.

CEO Antoine Frerot said Veolia did not expect further one-off hits this year, except for possible restructuring charges.

Veolia also confirmed its financial objectives for 2013 and said it would aim for organic revenue growth, which excludes acquisitions, over three percent per year after 2013.


First-half sales fell 3.3 percent to 11.07 billion euros. In the waste division, the decline in revenues eased to 1.4 percent in the second quarter from 4.6 percent in the first.

Veolia earned 51 percent of its turnover in France, 21 percent in Europe and 8 percent in the United States, with the rest coming from emerging markets.

Frerot said in February it was looking to high-growth markets to bolster its core business, but it also wants to reduce its global footprint following a debt-fueled acquisition spree under Proglio, who now heads power utility EDF.

Veolia ended 2012 with a presence in 48 countries - down from 77 a few years ago - and aims to end this year with a permanent presence in 40 countries.

Frerot wants to cut reliance on cities and municipalities too, by boosting the share of revenue from industrial clients to 50 percent from 35 percent within 5 years.

He aims to do this by focusing Veolia on difficult and more high-margin forms of waste handling. In January, Veolia launched a business in dismantling and decontaminating nuclear sites, and in April it announced more investment in toxic waste recycling.

Veolia will continue to sell assets as it aims to reduce its net financial debt to between 8 and 9 billion euros by the end of this year, from 11.3 billion at the end of 2012.

“Veolia is nearly a year ahead of its targets to reduce debt,” said Bryan Garnier analyst Julien Desmaretz, forecasting it would generate around 1 billion euros in asset sales in 2013.

The firm is negotiating with the city of Berlin about selling its 24.95 percent stake in Berlinwasser, which provides water for the German capital. It also wants to sell part of its stake in transport unit Transdev to state bank Caisse des Depots (CDC), its partner in the venture, and is in talks to sell its water business in Morocco.

$1 = 0.7528 euros Additional reporting by Benjamin Mallet; Editing by Mark Potter

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