Veolia is planning a major expansion in the region as the French utility diversifies its business outside Europe.
The water and wastewater specialist expects regional revenues to reach €350 million (Dh1.44 billion) over the next five years from €200m in 2015 as it increases its energy efficiency and water treatment businesses.
“This part of the world is one of the most growing parts in terms of population, in terms of concentration in cities,” said Antoine Frérot, the Veolia chief executive. “It is a water scarcity region, a hot region and to live in this region, you need more effort than in some [other] temperate parts of the world.”
Veolia, which operates in 20 countries in the Middle East and North Africa (Mena) region, is seeking more business in emerging markets as part of a 2016-18 plan to boost net income to over €800m in three years. In the GCC, Veolia is forecasting greater business in energy efficiency than in water projects as governments and businesses seek to cut costs and save energy. Currently its regional business is split half-and-half between energy and water.
Faced with low oil prices and lower spending power, more Arabian Gulf governments are turning to the public-private partnership (PPP) model to seek private financing for projects, particularly in the power and water sector. Countries in the region are revamping or introducing new PPP laws to cover more sectors.
“Ten years ago there was more PPP,” said Mr Frérot. “For five years it has been more classical public orders and now perhaps because of the decreasing oil and gas revenue it could come back to the PPP model.”
Veolia’s focus on high growth areas has resulted in higher income.
Last year profit increased 86 per cent to €450m from €242m in 2014 on higher revenue and lower costs, which also boosted the company’s cash flow. Veolia forecasts up to €600m in net income this year.
To finance growth, the company plans to spend an annual €1.7 billion over the next three years, with €1.2bn focused on its existing portfolio and the remainder on new projects.
Globally, the French company is forging ahead with projects despite the global economic slowdown as tighter environmental regulation around the world forces polluters to seek waste treatment and governments to target energy efficiency to save costs.
Back in 1999, Veolia generated nearly 92 per cent of its business from France. Last year, France comprised only 22 per cent of its business.
The company has a target to generate half of its revenue from developed countries and the other half from emerging markets by 2018. Last year, developed countries accounted for nearly 70 per cent of the business, with the rest coming from emerging markets.
“Environmental services will be key for these emerging countries to continue to grow their industry and their economy, and I think there is more to do for Veolia in these countries than in developed ones,” Mr Frérot said.
“There is more regulation in different parts of the world and this for Veolia is probably the main driver.”
Veolia is returning to growth after divesting assets since 2012 to lower its debt amid an industrial slowdown in France.
It is now pursuing acquisitions in small companies, with a price tag of less than €100m and medium sized companies, with a value of less than €400m.
“Because our free cash has increased in the past and will continue to increase, I have more means for investment and we do not need to increase the debt level, so I could invest all the money we earn,” said Mr Frérot.
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