Bloomberg News

Suez Environnement Melbourne Water Plant to Hurt 2011 Profit

October 26, 2011

(Updates with comments from chief financial officer in fourth paragraph.)

Oct. 26 (Bloomberg) -- Suez Environnement, Europe’s second- largest water company, said rising costs from a Melbourne desalination plant contract will cut earnings and force it to scrap a planned increase in the 2011 dividend.

The 185 million-euro ($256 million) charge will cut 80 million euros from full-year earnings before interest, tax, depreciation and amortization and 125 million euros from net income, the Paris-based company said in a statement today.

Strikes and bad weather at the Melbourne building site led the company’s board to recommend keeping its dividend at 65 euro cents this year, the same as last year. Suez Environnement said in August it planned a 5 percent increase in annual dividends. Its dividend has been unchanged since 2009.

The utility now expects a delay of about a year for completion of the plant, Chief Financial Officer Jean-Marc Boursier said on a conference call. A force majeure declaration, which can abrogate contract clauses due to unforeseen acts, may apply due to the strong winds and heavy rain that hurt construction, he said.

The utility has said 2011 would be a year of growth after struggling, like larger rival Veolia Environnement SA, to boost industrial waste sorting following the 2009 recession that shut factories. Earnings at both utilities will be hurt by another slowdown in European economies, Goldman Sachs Group Inc. said in an Oct. 20 note to clients.

The company had planned average Ebitda growth of 7 percent at constant foreign-exchange rates for 2011-2013. Net income was likely to exceed 425 million euros this year, the company said on Aug. 3.

30-Year Contract

Suez Environnement rose 0.1 percent to 11.83 euros at the close in Paris. The shares have dropped 23 percent this year.

The company’s Ebitda would be around 2.5 billion euros for 2011 after the Melbourne charge while net profit could be about 300 million euros, Boursier said. He declined to give an estimate for next year. The utility raised cost savings targets for 2011 to 120 million euros for the year.

The company won a 30-year government contract in 2009 to build and operate the seawater desalination plant, Australia’s biggest, through the Aquasure partnership that includes Thiess Pty. It will provide about a third of the city’s annual water supply.

Construction conditions “deteriorated further in the third quarter including notably new disruptions due to labor relations and persistent low workforce productivity,” Suez Environnement said today.

Sales Rise

Suez Environnement’s Ebitda for the first nine months of the year climbed 9.2 percent to 1.845 billion euros from 1.69 billion euros a year earlier, the company said. Sales gained 8.3 percent to 10.978 billion euros.

The utility’s waste division posted 10 percent growth in revenue mainly because of a rise in secondary raw material prices, which Boursier said are expected to “remain high” even as the prices of paper and scrap metal declined in the third quarter.

Suez Environnement’s debt-to-Ebitda ratio will be close to 3 by the end of the year, from 3.22 at the end of 2010, following the acquisition of a Spanish water supplier, he said.

--Editors: Tina Davis, Charles Siler

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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