Veolia Slumps in Paris After Warning of Slower Growth

By Tara Patel

Oct. 20 (Bloomberg) -- Veolia Environnement SA, the world's biggest water company, slumped the most in Paris trading since going public eight years ago after saying a slowdown at its water and waste management businesses will crimp earnings.

Veolia slid as much as 4.74 euros, or 20 percent, to 18.68 euros, the steepest one-day decline since July 2000. The shares, which have lost 69 percent of their value this year, traded at 19.29 euros as of 10:40 a.m. local time.

The French utility reduced its growth outlook for the second time this year and pledged to dispose of businesses, blaming the economic slowdown and higher energy costs. Debt financing costs have also risen because of the global credit crisis, Veolia said. Analysts criticized the company for not reporting its current difficulties sooner.

``There is a real risk of a breakdown in confidence independent of the company's fundamentals,'' Patrice Lambert-de Diesbach, an analyst at CM-CIC Securities in Paris, who has a ``hold'' rating on the stock, said in a report today. ``The impression is of a lack of reliable feedback in its financial control and a considerable delay by management in communicating problems.''

The Paris-based company expects total investments to fall 34 percent to 4 billion euros ($5.4 billion) this year and said weaker economic growth and temporary shutdowns of incinerators are weighing on this year's earnings, according to a statement released late yesterday.

Borrowing Costs

Veolia's cost of borrowing in 2008 has risen to between 5.7 percent and 5.8 percent, compared with 5.4 percent in the first half of the year, Senior Executive Vice-President Jerome Contamine said on a conference call today.

``We expected the water business to be above 2007 levels and in fact it is below,'' he said. Veolia's industrial waste operations in Europe have been hit by rising costs, which it hasn't been able to pass on to customers, Contamine said.

Veolia said its waste business in France has slowed. The temporary shutdown of incinerators in Italy and the closure of a facility in Germany also hurt revenue, it said.

It expects 2008 cash flow of between 4.1 billion euros and 4.2 billion euros, about the same level as the 4.16 billion euros recorded in 2007.

Veolia maintained its 2009 target of 400 million euros in savings over two years. About 180 million euros of savings will come through in 2009, the company said. The company expects to generate positive free cash flow in 2009, it said.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net