* Sixty pct of new orders in H1 from industrial clients
* Recycling, dismantling business still a sellers' market
* Revenue growth to come from industrial clients
(Adds CEO quotes on industrial sites, dismantling)
By Geert De Clercq
PARIS, Aug 28 French water and waste group
Veolia Environnement's first-half 2014 net profit more
than doubled as its focus on waste treatment for industrial
clients over municipal water customers began to pay off.
With margins in Veolia's core French water-concession
business being squeezed in difficult contract negotiations with
its municipal customers, the firm is focusing on waste treatment
for industrial customers.
"Commercial efforts targeting the industrial sector are
already bearing fruit," Veolia Chief Executive Antoine Frerot
said. He also confirmed the firm's earnings guidance.
Consolidated net income jumped to 210 million euros ($277
million) from a restated 85.5 million in the year-earlier
period, while revenue edged up 1.4 percent to 11.23 billion
euros from 11.07 billion.
Frerot told an earnings call that 60 percent of the firm's
new orders during the first half had come from industrial
clients and 40 percent from municipal clients.
Frerot cited the extension of a contract with Swiss
pharmaceutical company Novartis for technical services
and facilities management with a cumulative revenue of 925
million euros over five years, as well as the construction and
operation of two biomass plants in Canada that will yield
cumulative revenue of 1.1 billion euros.
Veolia also won a contract to build and operate a raw water
treatment plant for BP's Khazzan gas field project in the
Gulf Arab state of Oman with estimated cumulative revenue of $75
Frerot said the benefit of the industrial market is that it
is less capital-intensive. Even if Veolia designs, builds and
runs industrial installations, clients generally want to own
them, so Veolia does not have to finance them, thereby reducing
its capital needs.
Frerot added that margins are also better in these new
businesses than in Europe's mature municipal water markets.
"As these are new markets, there are not a lot of
competitors yet. Therefore it is a sellers' market and we are
happy with the margins that we are earning in these new
industrial markets," he said.
Veolia is also building up its dismantling business and has
won a contract from transport group RATP to dissemble more than
300 metro carriages, a contract from the French navy to
dismantle the Jeanne d'Arc and Colbert ships, and for the French
army it will dismantle military equipment and submarines.
"Developed countries no longer scuttle their old ships," he
Frerot said, adding that this market is growing quickly and that
Veolia wants to become a major player in it.
He also said that from 2018-19 he expects revenue of about
100 million euros per year from the dismantling of nuclear
He said this would start not with nuclear plants but with
research installations. The United States already spends several
billion dollars per year on dismantling nuclear research sites
and French nuclear agency CEA alone some 600 million euros per
Two contracts with the CEA to dismantle parts of research
sites Marcoule and Cadarach will allow Veolia to build up more
expertise in this market, Frerot said.
In this field, Veolia will compete with French
state-controlled nuclear group Areva.
Frerot said that he expects Veolia's revenue to grow by at
least three percent annually in coming years and that most of
this growth will come from industrial clients, as he expects
stable revenue in its core municipal water activities.
Veolia's core earnings before interest, tax, depreciation
and amortisation (EBITDA) rose 8.5 percent to 1.01 billion
euros. Ebitda from its waste activities was up 15 percent to 464
million euros and water earnings were up 2.2 percent. But core
earnings from its energy activities were down 5.4 percent due to
the mild winter that hit first-quarter profit.
"Things are going well for Veolia, but this is already well
reflected in the stock price, which has risen a lot in the past
days, so the potential for further gains is limited," a
Paris-based trader told Reuters.
By midday, Veolia shares, which are up 16 percent in the
year to date, were down 1.2 percent, slightly underperforming
the CAC40 index.
(1 US dollar = 0.7568 euro)
(Reporting by Geert De Clercq; Editing by Andrew Callus/Mark