Veolia Drops as Waste Business Saps First Half-Profit

By Tara Patel

Aug. 6 (Bloomberg) -- Veolia Environnement SA, the world’s biggest water company, fell the most in almost three months in Paris trading after posting a larger-than-estimated profit decline because of a slowdown in its waste treatment business.

Veolia shares fell as much as 1.58 euros, or 6.5 percent, to 23.77 euros, the biggest intraday drop since May 13, and traded at 22.98 euros as of 10:29 a.m. local time. Net income slid to 220.3 million euros ($317 million) from 500.5 million euros a year earlier, the company said today, missing the 384 million-euro average estimate in a Bloomberg survey.

“First-half results fell clearly short of expectations,” Matthias Heck, an analyst at Oppenheim Research GmbH in Frankfurt, said in a note. “We expect an initial negative share price reaction on the results, while comments on the progress of asset disposals, Veolia Transport and Veolia Cargo, as well as on cost reductions, could be seen as positive.”

The drop was due to a writedown of assets for the Italian waste treatment business and on the value of assets to be sold of about 100 million euros. Veolia and smaller competitor Suez Environnement SA have seen demand for waste collection and treatment fall as carmakers and steel producers close factories to survive the economic slowdown.

‘No Problem’

Veolia has “no problem” with its level of debt or liquidity and doesn’t need a capital increase, Thomas Piquemal, executive vice president in charge of finance, said on a conference call with reporters.

Chief Executive Officer Henri Proglio plans to sell 3 billion euros of assets through 2011 and has said he’ll cut investment by 44 percent this year and costs by 180 million euros. The company cut costs by 146 million euros in the first half, it said today.

Operating profit dropped 22 percent to 1 billion euros from 1.29 billion euros a year earlier. Sales fell 0.7 percent to 17.4 billion euros, dragged down by a 10 percent decline in waste management revenue. Net debt was stable at 16.8 billion euros from the end of March.

Veolia kept plans to generate positive free cash flow this year after paying a dividend and operating expenses. This takes into account a 10 percent drop in the waste management division, as was seen in the first six months of the year, Piquemal said.

Asset Sales

The company is aiming for 1 billion euros of assets sales this year and sold about 545 million euros in the first-half, Piquemal said. These will appear in second-half results once the deals are completed, he said.

Veolia spent about 4 billion euros in 2007 and 2008 on acquisitions including German trash-handler Sulo Group and TMT, the waste-management unit of Italy’s Termomeccanica Ecologia.

It has started talks with Caisse des Depots et Consignations, a French state-owned bank, to merge its transport unit Veolia Transport with Transdev, the fourth-largest private operator of public transport in Europe. Veolia and Transdev would each own half of a new company they would seek to list.

The company said July 31 it’s in exclusive talks with Societe Nationale des Chemins de Fer Francais and Groupe Eurotunnel SA to sell its cargo unit, a move that would reduce its debt by 95 million euros.

Veolia supplies water to about 110 million people worldwide and collects and manages trash for about 50 million. It provides public transportation in 27 countries and supplies energy in Europe and the U.S.

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