• Company ‘lost some ground’ in first half on sluggish demand
  • Suez is in talks to lift stake in Italy’s Acea to 23.3%

Suez SA, the French waste and water-treatment company, will deepen spending cuts and put acquisitions on the back burner as it strives to meet 2016 earnings goals amid sluggish European demand. The shares rose.

“Although we lost some ground in the first half of the year, we are reiterating our 2016 targets,” Jean-Louis Chaussade said in the statement. To achieve its goals, Suez will increase its cost-cutting target for this year by 30 million euros ($33 million) to 180 million euros, he said.

Suez will focus on organic growth, which means its previous target of boosting 2017 earnings before interest, taxes, depreciation and amortization to 3 billion euros partly through acquisitions is “not really a priority” any more, Chaussade said. The company is coping with constraints on pricing at home and weak industrial growth in Europe.

“The tough economic backdrop was well known, and we fully expected Suez to dial up on cost reduction to maintain 2016 objectives,” Martin Young, an analyst at RBC Capital Markets in London, said in an research note. “That said, we take heart from the confirmation.”

Earnings before interest and taxes fell to 598 million euros in the first half from 604 million euros a year earlier, the company said Thursday in a statement. Suez reiterated its targets for an increase of at least 2 percent in organic revenue growth, a rise in Ebit exceeding that rate, and free cash flow of about 1 billion euros.

Suez shares rose the most in a month, climbing 3.3 percent to 14.48 euros in Paris at 11:06 a.m. It was the best performer on the 18-member Euro Stoxx Utilities Index. The stock has slumped 16 percent this year.

Net income climbed 24 percent to 174 million euros after the acquisition of a stake in Australian waste-treatment company Sembsita Pacific Pte Ltd. in the second half of 2015.

The French company said it’s in talks to increase its stake in Italy’s Acea SpA to 23.3 percent from 12.5 percent. It would acquire Acea shares from the Caltagirone Group and plans to pay with new Suez shares. The transaction may take place around the end of the third quarter, and would boost Suez’s earnings by 22 million euros next year, Chaussade said.

The company will provide details when it releases third-quarter earnings of plans to overhaul the group in the next two to three years. Acquisitions will be a lower priority, and Suez hasn’t found satisfactory targets, Chaussade said.

“Today, my priority is organic growth and the transformation of the group,” Chaussade said on the call.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE