VEOLIA: Not afraid to make money in Israel 9Aug13 August 9, 2013

Haaretz    -    7 August 2013

Veolia values its business ventures here and has no plans to leave despite its international streamlining or pro-Palestinian pressure, says the international giant’s VP Denis Gasquet.

Four years ago, the chairman of French infrastructure giant Veolia, Henri Proglio, predicted that Veolia Israel would have annual turnover of $1 billion within five years. The years passed, and things changed. Proglio moved to another French company, EDF, while Veolia announced it was streamlining by selling off non-core activities. It would also be scaling back worldwide, leaving half the countries in which it had operations. But it has no intention of leaving Israel.

Last month Denis Gasquet, senior executive vice president of Veolia, attended the Tomorrow’s Environment conference organized by TheMarker and Veolia Israel. One of his purposes, he told TheMarker, was to highlight the company’s commitment to Israel, where the company has reached turnover of about NIS 1.5 billion a year.

“We’ve undergone strategic changes in the group. I wanted to affirm the group’s commitment to Israel and to say that even with these changes, we will continue to develop activity here,” says Gasquet, who notes that he was in Israel when Veolia began operating here. Veolia has been in Israel for 20 years, and now it’s time to plan the company’s activity here for the next 20 years, he says.

The group is the biggest you’ve never heard of. Veolia employs more than 300,000 people internationally and racked up revenues of 34.8 billion euros in 2010, on which it netted 550 million euros. Yet, burdened by debt of 15.2 billion euros and concerned about the debt crisis in Europe, it felt the need to scale back. It is ceasing its operations in 40 out of 77 countries, and will be selling about 5 billion euros’ worth of assets. It hopes to cut its debt to 12 billion euros by the end of 2013.

Gasquet is reluctant to elaborate on the group’s strategic changes.

“In general, the reason for the changes is our high level of debt,” he says. “We want to balance our balance sheets a bit with the help of places in which our business is good. The company’s global plan is designed to focus on the core activities and on the core countries, in which we will develop good services for customers. Activity will focus on the water, energy and waste sectors.”

How was the decision made to remain in Israel?

“The activity in Israel is important to us. There are good business opportunities here, and the financial and legal environment is good. We know we can rely on our partners here for the long term. Another reason for this is that there is a lot of technological innovation here. We already have cooperative ventures on various subjects, which are supposed to serve as a model for other countries.”

At this stage Uri Starkman, chairman and founder of Veolia Israel, joins the conversation. Every time he tells Gasquet about projects in the group’s core spheres, global headquarters gives him financing and support, Starkman says. But Veolia headquarters is no rubber stamp.

“If I try to sell them a business that isn’t core, even if it has 50% returns, it won’t be accepted,” he adds. (“With 50% returns there might be a good chance that it would,” Gasquet interjects with a laugh. )

“We have the same point of view,” Starkman says. “When you do something in which you don’t specialize, you don’t do it well, and you need to return to your base. Therefore, it was very important for us that our friend [Gasquet] has returned to Israel in order to underscore the group’s commitment.”

Israel is a good country for business, Starkman continues: As opposed to other places in the Middle East, when Veolia bids on a tender here, it has a chance of winning.

“We are not ashamed to say that we make money in Israel. I am very proud to return to Paris every year and show our results. The biggest groups in the world are not interested in Zionism, but rather in business, and in our spheres – we are the world leaders. The group’s activity in Israel is on par with that in the United States, Germany and Britain,” Starkman says.

It’s a rough world

Yet over the past two years, pro-Palestinian groups in Europe have pressured Veolia over its involvement in Israel – particularly the Jerusalem Light Rail project – casting a shadow over business. Parties within Veolia also have argued that the group is losing tenders due to its business here.

“There are many in England and in Scandinavia who would prefer not to work with companies that operate in Israel,” Gasquet admits, but he immediately qualifies: “We are living with it. Veolia decided to come to Israel 20 years ago, and we stand by our decision. We’ve been operating in Israel for 20 years, and we haven’t been harmed by it. I don’t know of a single tender we lost for those reasons.”

Asked whether some inside Veolia are calling for dropping activity in Israel, he says no. “There are many conflicts around the world. When you are a global company, you’ll have conflict anywhere.”

Starkman says the campaign against the Jerusalem Light Rail was orchestrated by Yasser Arafat’s nephew, who spread a report that the project would discriminate against Jerusalem’s Arab residents. “Ultimately, the project may not work perfectly, but there are no political problems, either with the Arabs or with the Jews,” he says.

How do you see the future of Veolia’s activity in the transportation sector in general?

“There was a decision made by global Veolia that transportation required a lot of investment. We merged our transportation activity with Transdev, with each party holding 50%, and immediately we wanted to bring the new company public in order to raise funds,” Starkman explains. “There is only one problem, and it is that money can’t be raised today. The only way to finance this is to find investment funds, and to dilute our share.

“Ultimately, we will exit the transportation sector. The question you asked is being asked by Veolia representatives around the world, and I also asked it in Paris. ‘If a tender is issued tomorrow, what do we do?’ In Paris as well, they still don’t know. A decision will be made several months from now. Denis doesn’t know what it will be, either.”

Gasquet confirms this, adding, “We would not be able to commit on behalf of the new management.”

Asked about France losing its perfect debt rating – the country was downgraded to AA + – Gasquet downplays the event.

“It’s more of a political, rather than a business, matter,” he claims. “A day after the rating cut, France raised money and the interest rate was better than what had been obtained two weeks prior to that,” he says.

The Parisian benchmark stocks index, the CAC-40, which tracks the 40 largest-cap companies on the Paris Stock Exchange, has risen 6% since the downgrade, Gasquet points out.

Given the lack of immediate impact, the market apparently predicted and internalized the implications of the downgrade in advance, Gasquet postulates. “The public perceives it as something symbolic, but no one was impacted by it. I do not see immediate implications for our business … The real question is not what the rating is, but rather what the economy will be like in the coming year.”

What will it be like?

Gasquet: “I still don’t know. If there’s a recession in certain countries, or growth is lower, we as a company will suffer. However, we are prepared for that and are planning to cut costs, to maintain closer contact with our customers, to improve the quality of service and to maintain innovation.

“Even at times of economic crisis, one must plan for the future, to remain ahead of the competition. That is why we are here in Israel. There is innovation here, this is a dynamic country, and we want to give something to Israel and to receive in return something of what is here.”

As an infrastructure company, are you more vulnerable during times of crisis?

“We do not build infrastructure. We provide services, and they still exist. Even if, for a certain amount of time, there is less investment in infrastructure, there are still many services that need to be provided. Even in the most difficult crisis, there is still a demand for water, for energy, for waste treatment. Our core business would not be influenced by the crisis and by the decrease in investment in infrastructure.”

Scatter thy eggs

Veolia has no urgent debt that needs repaying very soon, says Gasquet. Only in 2017 does it have to repay significant amounts.

Regarding extreme scenarios, such as a huge Greek default requiring heavy writeoffs, Gasquet shrugs that Veolia has never operated in that country. Why not? “Because there were no tenders there. Everything is managed by the authorities,” he answers simply, then admits: “We do work in Italy, and have had a few problems there.”

In the risk survey that you conducted ahead of 2012, did you take into account a potential euro zone breakdown?

“We do not have the same exposure to events like these that other companies do. We are not a regular industrial company, which manufactures in one part of the world and exports to another part. We manufacture locally and provide services locally. Our expenses and revenues are always in the same currency. If something were to happen, each country would still have a currency. The impact on us would be smaller than it would be on other countries.”

What are the safest places for investment in crisis?

“Experience amassed over the years shows that the best way to contend with the question of global security is to stay away from dangerous places. For example, we decided not to invest in certain places in Africa, but we do operate infrastructure in them. In the United Stead, China, Europe, Israel and several other places, we will continue to invest as usual. The best way to manage risk is to disperse our investments. Not to put all the eggs in the same basket.”

What will be Veolia’s growth engines 10 years from now?

“In the coming years the energy sphere will be more dominant, in light of the growing demand, the rise in fuel prices and global warming. We will develop local facilities for producing energy using cogeneration (combined production of electricity and steam – I.T. ) and biomass (producing energy from biological sources – I.T. ) technologies. We’ve developed business activity for treating hazardous waste, for turning used cooking oil into biodiesel, and for turning organic matter into bioplastic. The solution for times of crisis is innovation. We want to develop an organic refinery that will use wastewater to produce products that can be sold at a profit.”

Starkman: “The Israel Environmental Protection Ministry’s trend is to push recycling. That is good for global Veolia as well, since business like this requires experience and money. This is big business, one that requires a lot of know-how; otherwise, costly mistakes will be made. We believe that with our activity in Israel in the water, energy and waste sectors we are moving in the right direction.”

How to maintain that edge: The Veolia incubator

The Veolia group maintains its competitive edge thanks to its in-house technological incubator, claims Denis Gasquet, senior executive vice president of Veolia. No other company has a parallel system, he says.

“We have a tool called Veolia Innovation Accelerator, through which we achieve new technologies,” he says. “We help small companies estimate their market potential. These are private people, scientists, in small companies and in startups. If the idea that they present is interesting, it undergoes a process of business verification, without obligation. Ultimately, we can try to establish a partnership with the entrepreneurs – or to buy the company.

“This is our way of creating a connection with patent developers, of being in direct contact with these people and knowing what is happening in this world. We are the only ones in the world who use this method. Other companies buy part of the company in order to put the technology through a verification process. With us, the main goal is to obtain a broad, global view of these communities, and what is happening in the sector.”

By doing so, aren’t you financing the development of your competition?

“The question is whether it’s something applicable, in which there is interest. If so, we’ll enter into an agreement with the entrepreneurs or we’ll buy part of the company. And yet, each year we find perhaps two or three companies with potential. Therefore, we don’t have to buy the entire company, and we don’t have to have in-house technology. Why not? Because within five years there will be a competing patent, one that is better and more efficient, and it will be very hard for us to transfer from our technology to another one. We want to provide the best service, not necessarily to be the technology’s owners.

“For example, we have a project for pumping waste using a vacuum (removing waste to an underground neighborhood reservoir ). There are two central technologies on this subject, and only one really works. We have exclusivity over this technology, but tomorrow there may be another one. For that reason, we won’t get into technologies for optical sorting of waste for recycling.”

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