Suez Environnement (SEV), Europe’s second- biggest water company, reported an 82 percent drop in first-half profit because of cost overruns at an Australian desalination project, while waste-handling fell as economic growth slowed.
Net income slid to 40 million euros ($49 million) from 221 million euros a year before, the Paris-based company said today in a statement. That beat the 26.4 million-euro average estimate of five analysts Bloomberg surveyed. Earnings before interest, taxes, depreciation and amortization dropped 8.1 percent to 1.13 billion euros, compared with a 1.14 billion euro estimate.
Sales fell 0.7 percent to 7.32 billion euros.
“The decline in industrial production in the first half of 2012 in a more difficult macroeconomic context, especially in Europe, impacted performance of our waste division,” Chief Executive Officer Jean-Louis Chaussade said in the statement.
Suez Environnement, 36 percent-owned by utility GDF Suez (GSZ) SA, took a 52 million-euro charge on net income for the development of a desalination plant in Melbourne, the second impairment since October, on delays and increased costs. The company said the charge and a “difficult” economic situation, would leave Ebitda and sales unchanged in 2012. Chaussade declined to give an outlook for next year, citing the economy.
Suez Environnement had anticipated this year and next would be growth years after struggling, like larger rival Veolia Environnement SA (VIE), to boost industrial-waste sorting following the 2009 recession that shut factories.
Instead, it reported a 3.2 percent drop in volumes of waste processed in the first half as European economies slowed. Landfill tonnage dropped 12 percent while waste recovery for business including energy generation rose 4 percent.
“The months of April and May were particularly difficult while June was a little better,” Chaussade said on a call. The drop in annual waste volumes will be 3 percent to 4 percent, according to Chief Financial Officer Jean-Marc Boursier.
The Melbourne desalination plant is “almost completed” and should be at full capacity in December, Chaussade said. In total the order shaved 237 million euros from net income last year and 52 million euros in the first six months of 2012.
At the same time, the utility said Spain’s downturn is having “little impact” on its business, with Ebitda growing 5 percent in the first half. Water networks “need lots of work” and rates are expected to rise more than the European average in decades-long agreements, unlike in France were the trend is for rate decreases and shorter contracts, Chaussade said.
“The household revenues are falling so we are very careful every time we raise rates,” he said. The utility controls Spain’s largest non-state water supplier Sociedad General de Aguas de Barcelona SA, or Agbar, and has put in place rates to help lower income households, Chaussade said.
The utility said it would raise a cost-savings target by 40 million euros this year to 150 million euros and reduce net investment by 100 million euros. Some smaller assets may be sold, according to Chaussade. Suez Environnement will pay a dividend equal to or higher than 65 cents a share this year.
Debt rose to 7.88 billion euros, or 3.26 times Ebitda, from 7.56 billion euros at the end of the year.
Veolia, Suez and Saur SA face a formal probe by European Union antitrust regulators into possible collusion to fix the price of water and waste-water services in France.
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