Last updated: November 10, 2011 10:49 pm

Veolia weighed by pricing pressures

Veolia Environnement fleshed out to investors on Thursday the profit warning issued this year as pricing pressures and operational difficulties weighed on the French group.

The world’s biggest water treatment utility by revenues said the fall in full-year operating profits, excluding its urban transport division and at constant exchange rates, “may be similar” to the 12.9 per cent drop reported in the nine months to September 30 as it unveiled third-quarter results.

Veolia, which provides drinking water and wastewater services to 173m people globally and manages rubbish for about 50m, warned in July that full-year operating profits could be hurt after problems in its US, Italian and Moroccan businesses led to a restructuring and announcement of an €800m ($1.1bn) writedown.

However, the French group did not include the impact of this impairment in the decline it outlined on Thursday, a fall it attributed to pricing pressure in its domestic market and operational difficulties in south Europe and north Africa, given the strained political contexts.

Sales in the nine-month period were up 15.8 per cent to €23.96bn, while adjusted operating profit for the group was down 8.6 per cent at current exchange rates to €1.25bn.

Antoine Frérot, chairman and chief executive, said that while third-quarter results continued to be affected by operational difficulties these “are in the process of being resolved,” and that the group’s divestment programme for this year was almost complete.

It has achieved €1.17bn in disposals from an objective of €1.3bn by the year’s end.

Veolia wants to shed €4bn of assets to reduce net debt, which stood at €15bn at the end of September, and streamline the group.

In August it announced it would dramatically scale down its global presence by leaving half of the 77 countries where it is present as part of its restructuring.

“This is a company that needs a turnround and management are doing the right thing [by making disposals], but Veolia is a huge and complex company, and conditions are more challenging,” said Per Lekander, head of utilities research at UBS. “To continue and get a good price they may have to sell better, profitable assets.”

Veolia also faces pressure with its main customers, municipalities, under strain as governments trim spending, he added. Its shares were down more than 3 per cent in early Paris trading but recovered to close up 1 per cent at €9.19.

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