Veolia profits slow to a trickle, shares sparkle

French utilities group Veolia Environnement reported a six-month profits slump owing to provisions and warned that its activities in China were slowing, in a results statement on Monday, but its shares firmed. The group, which provides water and waste management services in many countries, held to its targets for this year with the emphasis on reducing costs and debt. For the first half of the year, the group eked out a profit of just 4.0 million euros ($5.3 million), marking a fall of 98.0 percent from the equivalent figure last year. This reflected a provision of 48 million euros for its waste activities in Germany and another of 17 million euros for restructuring at company headquarters. However, excluding such non-recurrent items, earnings before interest, tax, depreciation and amortisation (Ebitda) fell by 7.6 percent to 930 million euros and recurrent operating profit rose by 28.0 percent to 539 million euros. Sales slipped by 3.3 percent to 11.07 billion euros. Analaysts had expected a much higher net profit figure of 106 million euros but lower sales of 10.6 billion euros, according to a poll by Dow Jones Newswires. The price of shares in Veolia Environnement was showing a gain of 1.46 percent to 10.42 euros in early trading whereas the overall CAC 40 index was ahead by 0.15 percent. Finance director Pierre-Francois Riolacci told a telephone press conference that business conditions in the second quarter pointed to a "stabilisation" in Europe after a difficult first quarter . The group expected conditions in Europe to remain much the same in the second half of the year but was vigilant regarding the possible consequences of a slowing of activity in China. In Europe "we are expecting quite sluggish activity. We are not seeing a rebound but on the other hand we are not seeing a slowdown either, and we are in this rather slack situation," he said. But Veolia was being "particularly" vigilant regarding China where the slowing of strong growth "could have an impact on the level of prices of raw materials sold by the group." Otherwise, the group had shown "quite strong resilience" in the face of the economic crisis, he said. At Citigroup brokers, analysts noted that Veolia had performed markedly better in the second quarter than in the first. Even though the group would be making provisions up to 2015, "the restructuring is going well," they said. Waste management, which is closely tied to the economic cycle, had fallen most by 5.3 percent in terms of sales to 3.98 billion euros, owing to declines of 4.9 percent in France and 10.5 percent in Germany. Water management activities, in which Veolia is the world leader, reported a fall of 4.6 percent to 5.0 billion euros, mainly because of a slowing of work on infrastructure and engineering. But the energy division Dalkia, a joint venture with French group EDF, increased sales by 3.0 percent to 1.97 billion euros. The strategy of chief executive Antoine Frerot has been based largely for 18 months on reducing debt which fell to 10.0 billion euros from 10.1 billion at the end of March and 10.8 billion at the end of December. The group, which has a programme to sell assets to raise 6.0 billion euros, held to its target of reducing debt to 8.0-9.0 billion euros by the end of the year. Veolia also stood by its target of saving 400 million euros next year and 750 million euros in 2015.