A Make-Over for French Utilities : International: Beleaguered pillars of rural France are now looking beyond national boundaries for more of their business.

PARIS — For a century, Generale des Eaux and Lyonnaise des Eaux were pillars of rural France, first supplying water and gas, and later collecting garbage, building homes and roads--even caring for the sick and burying the dead.

Then came allegations of corruption in contract awards, and a collapse in French real-estate prices, the construction market--and profits. The utilities responded by remaking themselves and looking beyond France for new business.

The make-over is far from over.

“We are clearly at a crossroads,” said Guy de Panafieu, vice chairman of Lyonnaise. While international markets for the companies’ services are opening up, problems persist at home.

Although both companies expect sales and profits to grow this year, they are largely a rebound from poor results last year, analysts said.

“It’s not good quality growth,” said Andrew Stone, an analyst with Daiwa Europe Ltd.

Sales at Lyonnaise are expected to rise 7% this year; at Generale, about 6.5%. Four years ago, Generale’s annual revenue rose 16.2%; Lyonnaise, 23.7%.

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Though Lyonnaise is seen by analysts as riding the troubled waters better than Generale, both merit caution.

Generale, for example, lost 2.3 billion French francs ($479 million) on its real estate unit Compagnie Immobiliere Phenix last year. Analysts estimate it will lose as much as 1 billion francs this year from the unit.

Lyonnaise, meanwhile, merged with construction company Dumez in 1990, just in time for the worst of France’s real estate and construction crisis. The company has lost more than 2.5 billion francs in its real estate operations.

Even so, Lyonnaise’s problems seem more under control than Generale’s, said Marie-Christine Livinec, an analyst with Paris brokerage Transbourse.

Generale, she said, is “not out of the woods yet when it comes to real estate,” while Lyonnaise’s real-estate portfolio “seems well cleaned up.”

Profits for the companies this year are expected to be higher than in 1994. Not because of any real growth; rather because of smaller provisions to cover troubled operations, analysts said.

Lyonnaise is expected to earn 25.8 francs a share, up from 18.7 francs last year. Generale is expected to make 34.5 francs a share, after making 29.7 francs in 1994.

“That’s hardly impressive growth,” Stone said. “I’m not knocked out by them.”

The companies’ share prices, which were dragged down last year by as much as 50% for Lyonnaise and 73% for Generale on poor sales and real-estate losses, also were hurt by corruption charges.

Last year, French police found links between payments from Lyonnaise to Alain Carignon, the mayor of the southeastern French town of Grenoble, and the granting of water contracts there.

Earlier this year, a French magistrate began investigating allegations that Generale’s chairman, Guy Dejouany, was involved in corrupt bidding for water contracts in the Indian Ocean island of La Reunion.

The companies have tried to put these charges behind them: Generale brought in 39-year-old Jean-Marie Messier from Lazard Freres to the post of chief executive; Lyonnaise said it has stopped all funding of political parties.

Even as these issues are sorted out at home, both companies are looking beyond France for growth.

“The motor of growth will be outside France, notably in water and electricity production, and in French telecommunications activities,” Generale’s Messier said.

Analysts agree. Private management of public services, long the accepted practice in France, is becoming popular elsewhere as governments struggle to cut costs, Daiwa’s Stone said.

To be sure, both have been tapping the international market for some time--Generale got 46% of its total sales from outside France last year, up from 27% in 1992. Lyonnaise got 43%, unchanged from two years before.

Lyonnaise, for example, supplies water to Buenos Aires; manages waste water in Indianapolis, Ind.; is building oil storage tanks for Germany, and digging a subway system in Athens.

Generale, meanwhile, supplies water in Philadelphia and gas in Seoul, while cleaning Boston harbor and collecting garbage in Colombia.

“Our goal is raise the share of foreign revenues in total group revenue to between 50% and 60% within the next few years,” Lyonnaise’s de Panafieu said.

Both companies--especially Lyonnaise--have aggressively marketed French engineering know-how in Asia, Latin America and Europe.

There have been setbacks. U.K authorities last month told Lyonnaise, which provides drinking water for 3 million people in the U.K., that its bid to take over Northumbria Water Group Plc is “against the public interest.” Regulators called for price cuts of 15% to 20% if the takeover proceeds.

Generale and Lyonnaise also have made major forays into communications and media.

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Generale controls the second cellular telecommunications network, SFR, in France and is rapidly gaining market share from rival France Telecom in digital mobile services--going to 40% of the market from 8% a couple of years ago.

Generale also owns about 20% of Canal Plus SA, Europe’s largest pay-television company.

In April, Generale formed a venture with Unisource, a pan-European telecommunications consortium with links to AT&T; Corp. Generale aims to be France’s second-biggest telecoms company--after France Telecom, Messier said.

In spite of Messier’s telecoms ambitions, there will be no profits from the business for a few years to come, analysts said.

Lyonnaise has been in the media and communications business for a decade, having bought a 36.6% stake in television channel M6, now France’s most profitable station, with net profit of 230 million francs in 1994 on sales of 1.8 billion francs.

Lyonnaise in January bought cable networks owned by Caisse des Depots, a state-owned bank, making it France’s largest cable company with 33% of the market. Lyonnaise expects to break even on cable in Paris this year and throughout France in 1996.

It also created Europe’s first pay-per-view TV channel in 1994, with experimental new services to be launched this year.

With so many “pots on the fire, the outlook is positive for them in the long term,” said Daiwa’s Stone.

For now, he added, there “remain these issues of corporate governance and question marks over property, especially with Generale.”