Company News For Tuesday: Veolia, Compugen

Reporting today in its own fashion was Veolia Environnement, which now trades as VEOEY on the pink sheets. The French water and cleanup firm mashed together its Q1 and Q2 figures and it used constant and current currency data to improve its outlook. While this inspires skepticism, I think CEO Antoine Frérot made the case for a turnaround at the firm he heads and its likelihood of meeting 2018 targets. The reasons were not the confusing numbers but such features as euros 121 in cost cutting, well ahead of target; a drop of 8% year/year in debt to euros 8.678 bn, still huge for a firm whose sales came to euros 11.956 bn in H1; and deals. These include getting out of the public transport business by selling its Transdev arm to the state retirement fund, la Caisse des Dépôt et des Consignations, Aug.1.

It also signed a major euros 3.3 bn deal with Yanshan Pete China, a sub of Sinopec, highlighting its move into large cleanup projects for the oil industry. It also bought two environmental firms in the USA, Kurion which treats radiation and Chemours which removes sulfur from smokestacks. In a break from tradition, M.  Frérot frankly stated (in the French conference call) that the French municipal services market (where VEOEY started out) has become unprofitable and the whole rest of the company is being used to offset the unacceptable 10.7% EBITDA margin in France. EBITDA is Earnings before interest, taxes, depreciation, and amortization. Worldwide that level is 13.2% and in emerging markets a whopping 17.4%.

Now for the numbers, all for H1. EBITDA was euros 1.56 bn, up 5.6% year/yr at constant exchange rates, and up 6.9% (with no number given) in Q2. Net profits came in for the half at euros 342 mn, up 6.4% at current exchange rates and 10.1% at constant ones. Tax rates remained flat at 29% but the total was nipped by euros 95 mn for restructuring and boosted by the Transdev deal. The resulting adjusted net was euros 251 mn.

In Q2 non-renewal of contracts in its homeland led to French sales falling 0.7%, hurt also by a drop in iron prices (which reduced the profits from collecting and recycling municipal garbage). Waste water, its other legacy business, was down 10.7%, again probably mostly in what the French call the Hexagon. M. Frérot commented that France was among the “countries where activity was less favorable” and “challenging” so VEOEY will be further restructuring there. That is a euphemism for reducing manpower there.

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