Taking Out the Trash…to the Bank
11/15/2012 11:48 am EST
You get the best of the world in this company—US transparency, European prices, and emerging-market demand—as long as you can take some near-term volatility, notes George Putnam of The Turnaround Letter.
Veolia Environnement (VE), based in Paris, provides environmental services to government and commercial customers around the globe.
It traces its roots back to a French irrigation and water supply company founded in 1853. Initially part of Vivendi, Veolia was spun out as an independent public company in 2000.
Under a previous CEO, the company went on a debt-fueled acquisition binge in the mid- 2000’s. Then the 2008 recession hit many of Veolia’s customers hard, forcing them to cut back their purchases of Veolia’s services. The company has struggled to rebuild its revenues and profits ever since.
Veolia is refocusing its business to concentrate on a few core competencies in areas with strong growth prospects. It is divesting several non-core operations and using the proceeds to reduce debt. At the same time it is cutting costs and streamlining operations in the remaining business divisions.
The company is getting out of the transportation sector entirely, and is divesting its UK regulated water business and its US solid waste operations. It expects to receive proceeds of about €5 billion, much of which will be used to reduce the company’s net debt load from nearly €15 billion to below €12 billion.
After the divestitures, Veolia will focus on water treatment, solid waste management and energy services. All of these services are likely to be in growing demand in both the developed and emerging economies.
Management is reorganizing and streamlining operations. This is expected to save €225 million this year and €270 million in 2013.
Even as they laud Veolia’s restructuring program, many investors are shying away from Veolia because of its European location and focus. When Europe eventually comes back into investors’ good graces, that could magnify the positive effect that the restructuring program is likely to have on the stock price.
In the meantime, Veolia is committed to maintaining a generous dividend. While European dividends can be more variable than in the US, and they may be subject to withholding taxes in some circumstances, it is likely that Veolia’s dividend will add meaningfully to the total return in the stock.
We particularly like Veolia’s strong position in the water treatment market because water is becoming an increasingly valuable resource around the world. And we believe that the actions currently being taken by the company position it well for the future.