Veolia hopes to clean up in China to offset dropping profit

Veolia Environnement SA Chief Executive Officer Antoine Frerot said the company will double its revenue in China to 8 percent of the global total in the next five to 10 years, focusing more on emerging countries to offset declining profit margins in Europe.

Emerging economies only account for 30 percent of the company's business, with the rest coming from "mature markets", Frerot said, adding that the goal is to achieve an equal split.

Assuming that the revenue goal for China is achieved, the market will have an equal weight with the United States and Germany, Frerot said at a news conference in Beijing.

"The deepening economic crisis has made purchasing power in Europe shrink," he said.

European customers were seeking lower fees, which hurt profit margins on water contracts. Meanwhile, the waste-collection business declined due to lower consumption in Europe.

"Veolia has no business in Greece, but if Greece exits the eurozone, the economic crisis will worsen and things will become extremely complicated for all enterprises in debt," Frerot said.

The company aims to reduce its net debt to less than 12 billion euros ($15.1 billion), from 15 billion euros by the end of next year.

It will sell its water business in the United Kingdom and waste business in the United States, and it will also sell its transport business to make the company more concentrated and profitable.

"We have many debts, but we also have good cash flow, which will allow us to pay debts for six consecutive years (until 2018) if we don't borrow one single euro from now. Furthermore, I think the downturn of the financial markets won't persist for six years," Frerot said.

After selling the assets, "we will acquire another 5 billion euros to increase our financial flexibility. At least 2 billion euros will be used in reinvestment.

"In case the economic crisis continues, we have the ability to pay our debts for another three years," he said.

In China, 70 percent of Veolia's clients are local governments, with the rest from the industrial and service sectors. Frerot said the target is to cut the percentage of local government customers to half by attracting more industrial customers.

The company's industrial customers in China include Michelin (China) Investment Co and Anhui Jianghuai Automobile Co.

China has set targets in sewage treatment, industrial pollution management and energy conservation in its 12th Five-Year Plan (2011-15), providing enormous opportunities for the company, he said.

Frerot said Chinese competitors have gradually grabbed some market share.

"Our competitive edge lies in maintaining innovation and continuously supplying new technologies and products to the market," he said.

lanlan@chinadaily.com.cn