UPDATE 2-Suez says waste volumes stronger, eyes acquisitions

Thu Apr 24, 2014 5:01am EDT

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* Australian, Chile currency weakness weighs on earnings

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By Geert De Clercq

PARIS, April 24 (Reuters) - France's Suez Environnement said the volume of waste it treated in the first quarter had grown for the first time in two years and that it could spend up to 700 million euros on acquisitions this year.

Suez's first-quarter core earnings fell 2.2 percent to 552 million euros from an adjusted 564 million a year earlier, mainly because of the depreciation of the Australian dollar and the Chilean peso against the euro.

The world's number-two waste treatment and water company after French peer Veolia said it endured a negative exchange rate impact of 94 million euros on revenue, 30 million euros on EBITDA and 55 million euros on net debt.

Chief Financial Officer Jean-Marc Boursier told an earnings call that the problem was not the level of the euro, but that the Australian and Chilean currencies had fallen against the euro, reducing the contribution from its operations in those countries.

Revenue fell to 3.35 billion euros from an adjusted 3.42 billion. The weak Australian dollar cut revenue by 41 million euros, while the Chilean peso had an impact of 33 million.

Like Veolia, Suez is trying to offset shrinking profit margins in its traditional municipal water business by focusing more on industrial clients.

The companies are investing heavily in areas such as the treatment of toxic waste, water treatment for the oil, gas and mining industries and waste from agribusiness and food processing.

Suez said a slight improvement in its waste business at the end of last year had continued in the first quarter, as shown by a 1.7 percent increase in treated volumes.

"For the first time in two years, our volume of waste treated is on the rise," Boursier said.

He said that was due to a more stable economic environment and to new installations. But the positive impact of higher volumes was offset by lower prices for secondary raw materials retrieved from waste and sold on by Suez, with metals prices notably down 11 percent.

Lower electricity prices in Europe also reduced the income from power generated by burning waste.

"We based our earnings guidance on the assumption of 1 percent volume growth for the entire year, and with 1.7 percent so far we are slightly ahead," said Boursier.

March and April had been good months, he said, and the company was hoping waste volume would grow 1 to 2 percent this year.

"The economic recovery is at our door, but it is uneven across Europe, with strong growth of about 4 percent in Germany and 3 percent in the UK, but slower growth in France and the Netherlands, where we have a sizable business," he added.

ACQUISITIONS

Boursier said that Suez - which invested about 1.1 billion euros in 2013 - would invest a similar amount this year.

"In order to reach our objective of organic growth of at least 2 percent of EBITDA, we need to invest 1 to 1.2 billion euros this year," he said.

Boursier also said that since the company's debt is now well below three times core profit - or earnings before interest, tax, depreciation and amortisation (EBITDA) - it had the capacity to develop through targeted acquisitions.

"We have financial flexibility of about 700 million euros," he said.

The company said earlier this month it had a budget of about 500 million euros for acquisitions this year.

Asked which businesses and areas the company would target, he said Suez would look to invest in new water services rather than in the historical concessions business, in industrial water rather than municipal.

He added Suez would invest internationally rather than in Europe and that its waste business would focus on recycling and energy production.

Asked about possible changes in the company's shareholder structure, Boursier said there was nothing afoot. Veolia and Suez denied this month that they were considering a merger, after a research report raised that possibility.

Suez shares were down about 1.5 percent in morning trading on Thursday, underperforming the wider French blue-chip index which was up 0.5 percent. The company's shares are up about 12 percent in the year to date and 40 percent over the past 12 months. (Reporting by Geert De Clercq; editing by Andrew Callus and Tom Pfeiffer)

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