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UPDATE 2-Suez eyes consolidation in Italian water industry
July 30, 2014 / 7:00 AM / 3 years ago

UPDATE 2-Suez eyes consolidation in Italian water industry

* Suez sees consolidation in fragmented Italy water market

* Sees Italy as third pillar in its Europe water business

* Europe water EBITDA up 4.6 pct in first half

* CEO says Suez has the means for further acquisitions (Adds comments about Italy water, acquisitions, waste in Europe)

By Geert De Clercq

PARIS, July 30 (Reuters) - French waste and water group Suez Environnement wants to become a leading player in the Italian water industry as the fragmented market consolidates, and remains on the lookout for further acquisitions worldwide, its CEO said.

Suez chief executive Jean-Louis Chaussade told reporters he expects that some 100 water companies in Italy will gradually consolidate and a few large players will emerge.

“It is clear that in the coming twenty years, the number of water companies in Italy will fall and the market will consolidate. Like in France, we will see the appearance of three or four big companies once the market has consolidated, and we want to be one of these players,” he told an earnings call.

In France, Suez and its larger peer Veolia dominate the water distribution business.

In February, Suez Environnement bought its parent company GDF Suez’s 3.95 percent stake in Rome-based utility Acea, taking its own shareholding to 12.5 percent.

“We want to be associated with one of the players who will consolidate the Italian market in the 10 to 15 years to come,” Chaussade said.

Asked about a possible increase of the Suez stake in Acea - which has a market capitalisation of 2.3 billion euros and is 51 percent owned by the city of Rome - Chaussade said Suez was in permanent contact with Rome about the running of Acea but was happy with its current stake.

Chaussade expects Italy to become a third pillar of Suez’s European water business, after France and Spain, where in 2013 it earned 5.3 and 1.6 billion of its 14.6 billion euro revenue.

In 2013, Acea had revenues of 3.6 billion euros, of which 1.7 billion euros in water. In Tuscany, Suez manages several water firms with a combined turnover of about 500 million euros.

Chaussade said southern European water prices are relatively low, with Italy water tariffs around at just over 1 euro per cubic metre, while the European average is at 3.5 to 3.8 euros and over 5 to 6 euros in Denmark and Germany.

“Tariffs are low in southern Europe because there is a lack of infrastructure. Companies like us can put infrastructure in place at a reasonable price,” he said.

He added that water prices in southern Europe will go up faster than inflation as infrastructure is upgraded. This is already happening in Spain and will happen in Italy too.

Chaussade said that despite the Acea deal and the acquisition of a 24.1 percent stake in its Spanish water unit Aguas de Barcelona (Agbar) from La Caixa, Suez still has the same financial flexibility as in early 2014.

“We have a series of operations of different sizes on our radar screen, we will see whether some of these can materialise before year-end,” he said.

In April, Suez said it had a budget of about 700 million euros this year for acquisitions, which will be focused on industrial water, material and energy recovery in waste, growth in emerging markets, and smart water meters.

In the first half, Suez’s European water revenue grew 2.4 percent to 2.2 billion euros and earnings before interest, tax, depreciation and amortisation were up 4.6 percent to 607 million euros. But total first-half revenue fell 2.1 percent to 6.89 billion euros, mainly because of a 168 million currency impact.

First-half net profit rose to 280 million euros ($375 million) from 148 million and included a 129 million gain on the sale of its CEM Macau unit.

European waste volumes treated rose 1.2 percent despite a slight fall of industrial production in Suez’s main markets, but falling prices of recycled raw materials pushed down European waste revenue 2.4 percent to 3.1 billion euros.

“It is pleasing to see the volume increase in waste, though it is apparent that the economic conditions remain tough,” RBC analyst Martin Young said in a note.

Suez confirmed its 2014 targets, which include core profit growth of at least 2 percent. Its stock was up 3.6 percent at midday, after rising as much as 4.1 percent at the opening. (1 US dollar = 0.7461 euro) (Reporting by Geert De Clercq; Editing by James Regan and Mark John)

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